JD Sports shares going cheap

High street sportswear chain JD Sports Fashion had a great Christmas. With stockings full of tracksuits and trainers, like-for-like sales surged by 12% in the five weeks to 3 January. A record first-half was already in the bag and management now reckon full-year numbers will beat forecasts.

"The board is now confident that the headline profit before tax and exceptional items for our continuing operations will exceed the top end of market expectations for the current financial year which currently range up to £90 million," said the firm Friday. We'll get confirmation on 15 April.

A strong Christmas means that cumulative like-for-like sales growth for the 48 weeks to 3 January is now 12%. Investec Securities is looking for £1.51 billion of sales for the year to 31 January. The broker also upgrades earnings forecasts by 5.5% for this year and 3.4% for 2016. It now expects adjusted pre-tax profit of £94.4 million and £100.4 million respectively, giving adjusted EPS of 36.3p and 39.2p.

Up 16% to 503p since we turned positive in September, JD Sports shares still trade on less than 14 times forward earnings, dropping to 12.8 for 2016. Peers have re-rated recently and JD has some decent growth opportunities both in the UK and Europe. Indeed, erasing the £9 million of anticipated losses at its outdoor and fashion operations over time could generate an extra 10% of earnings growth, according to Investec.

If we strip out £86 million of forecast net-cash for year-end January 2016, worth about 44p a share, the forward rating sinks to 11.7.

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