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JJB running a marathon until 2012
Archived article dated Friday June 26th 2009
Nobody could accuse JJB Sports of having had a quiet time over the past 12 months (away from the shop floor that is) but now that it is on a slightly more stable footing its future largely depends on whether it can sufficiently differentiate itself with its new 'Serious about Sport' positioning.
By Glynn Davis, City editor
It had pretty much been savaged by its competitors JD Sports and Sports Direct from its almost deadly foray into flogging mass market brands and products at business-model-wrecking prices, which took the company too far from its heartland as created by founder Dave Whelan.But now with a stable and credible management, headed-up by Sir David Jones who is a man-on-a-mission, the future looks a whole lot more promising. There is no doubt that its 'Serious about Sport' stance should chime well with the general public as we head towards the 2012 Olympic Games.
JJB can also expect its move to be well supported by the major suppliers such as Adidas who would like a good UK high street platform from which to sell their premium products - something that JJB (along with Sports Direct) has failed to provide them with over recent times. This should enable analysts to factor a bit of margin growth into their models.
But even with this re-positioning strategy attracting increasing numbers of punters, the successful completion of the company's CVA, the completion of the sale of the Fitness Clubs division to Whelan, hitting the cost saving target of £18.4 million for the 2011 financial year, and the sale of some of the remaining non-core assets, the company still needs some additional medicine.
This involves an improvement in the general economy (which is has no control over) and a rights issue (which it has slightly more control over). The need to raise finance has been noted by Investec Securities that takes the view JJB could sell a credible story to the City - following in the footsteps of Debenhams and DSG - and that with extra funds in the kitty a growth story could be on the cards that would put an enterprise value on the business of 3x current levels.
With a “risk discount” of 20 per cent factored in, the broker suggests this valuation gives a price target of 38p, which compares with the current share price of 32p following the 10 per cent increase this week. This has taken the company to a level a world away from the 2.5p depths that it plumbed in late-December (when the life support machine was almost turned off) but is also a long way off the 130p of last August.
This is evidence of the roller coaster ride that the business and its shareholders have been on over the past 12 months. Where it heads from this point on, and how well the City buys into the story, is not only down to David Jones' efforts but also to who he lines up to succeed him as chief executive.
The success of any future rights issue will undoubtedly rely on Jones giving investors some indication of who he has selected to take over from him in the JJB hot seat and the prospects that the incomer will drive through the necessary change.
Even working on best assumptions JJB is still not looking like it will be a profitable company again until the year of the Olympics so the new CEO will have much to do. Investors should decide where to place their chips now.
glynnd@theretailbulletin.com
Tagged as: glynn davis | JJB
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