Interactive Investor

Insider: three chiefs buy this bombed-out FTSE 100 share

A recent slump to prices not seen in over a year screamed value to a trio of directors at this popular blue-chip company. Is heavy spending on shares a sign of better times ahead?

22nd January 2024 08:39

Graeme Evans from interactive investor

Three directors of JD Sports Fashion (LSE:JD.) have spent £170,000 increasing their holdings after a profit warning left the retailer’s shares a third cheaper than on New Year's Day.

Chief executive Régis Schultz led the way with an investment of £99,000 before purchases connected to chair Andy Higginson and non-executive director Andy Long.

Their moves at near to 109p compared with mid-December’s 175p and the 155.45p before the 4 January disclosure that trading had been softer and more promotional than JD anticipated.

House broker Peel Hunt cut its adjusted profit forecasts for this financial year and the following one to below £1 billion but retained a 250p target price, believing the weakness presented a “good opportunity to buy a growing market leader”.

It said: “External factors are mostly to blame. The consumer is cautious and looking for a deal and with no especially exciting launches, it has been a dullish period.”

Other analysts are more cautious, with RBC and Barclays lowering their price targets to 150p and JPMorgan cutting to 175p but with an “overweight” recommendation. One of five stocks in interactive investor’s Aggressive Winter Portfolio 2023-24, JD Sports has been an otherwise strong seasonal performer based on an average return of 23.7% over the past 10 winters.

Shares closed the week at 111.25p, outperforming the retail sector on Friday after the UK’s Office for National Statistics confirmed JD’s view of poor Christmas conditions.

For the 22 weeks to 30 December, JD reported like-for-like growth slightly behind its expectations at 1.8%. The gross margin was similar to last year, below its earlier hopes due to the elevated level of promotional activity in the peak trading period.

JD operates more than 3,400 stores in 38 countries, with about a third of its £10 billion annual revenues from North America through brands such as Finish Line and Shoe Palace.

Schultz, who became chief executive in September 2022, said this month that JD continued to make good progress on the five-year strategic plan he set out last February.

His ambition to make JD the leading “global sports fashion powerhouse” targets opportunities in Europe and North America through investment in stores, technology and analytics.

On recent trading, Schultz pointed out that JD continued to grow market share and that its overall revenue growth of 6% was against very tough comparisons with last year.

He added: “We are confident in our strategy and we continue to invest in our supply chain, systems and stores, supported by our strong cash generation and healthy balance sheet."

Schultz was appointed by Higginson, the former Morrisons chair who took the top boardroom role at JD in 2022. He knows both the retail sector and the company well, having grown up in the Lancashire town of Bury where JD was founded in 1981 and is still headquartered.

Higginson bought shares worth £240,000 at a price near 150p last January, with his household’s latest investment taking place on Thursday with a value of £49,500.

The £20,000 purchase by Long, who is an executive director at JD’s majority shareholder Pentland Group, was struck on Friday. He previously ran privately-owned Pentland’s portfolio of sports and fashion brands that includes Speedo, Canterbury and Berghaus.

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Elsewhere in retail, Currys (LSE:CURY) said finance director Bruce Marsh followed the company’s better-than-expected trading update by spending £29,430 on its shares.

Marsh, who joined the electricals chain in 2021 after holding the same role for Tesco in the UK and Ireland, made his purchase at 49p after shares jumped 4p on the back of improved full-year profit guidance of between £105 million and £115 million.

Like-for-like sales in the UK and Ireland fell 3% during the peak festive trading period but this was offset by a stable gross margin and continued cost savings. The group was also encouraged by sales trends in the Nordics, where it has faced intense levels of competition.

Chief executive Alex Baldock called it a successful peak trading period, even though “our markets may be no easier”. He added: “We’re in a healthy financial position, and our strategy is delivering a consistently improving customer proposition.

“As consumer confidence improves, we’ll be well placed to build on these strong foundations, to benefit shareholders as well as colleagues and customers.”

The shares, which topped 80p in March, closed the week at 48p after a retreat of 1.4p on Friday.

In other dealings in the FTSE 250, defence technology business QinetiQ Group (LSE:QQ.) said non-executive director Gordon Messenger spent £40,000 on shares on Thursday. His investment at 332.7p came after Qinetiq reported a strong operational performance in the third quarter and said it planned to buy back £100 million of shares over the next 12 months.

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