Interactive Investor

Two FTSE 100 shares tipped to go much higher

This pair has already set the market alight, but they’ve got plenty of supporters in the City who think this could be just the beginning.

23rd November 2023 16:08

Graeme Evans from interactive investor

Bullish commentary on “best-in-class” JD Sports Fashion (LSE:JD.) and the Microsoft-backed London Stock Exchange Group (LSE:LSEG) contributed to more progress for their shares this week.

JD Sports has risen by 16% since mid-October, but Bank of America reckons the retailer’s superior market position deserves much more than a current share price of 146p.

In a note published yesterday, the bank gave the transatlantic retailer a 233p target price and said the outlook for earnings growth meant it should command a much higher valuation multiple than peers. JD currently trades on nine times projected 2024 earnings.

It said: “JD Sports is the largest sports lifestyle retailer globally and, in our view, offers best-in-class growth at a compelling valuation.”

The bank believes concerns about demand from low-to-middle-income cohorts are among factors standing in the way of a re-rating. It also highlights the impact of suppressed multiples for US sportswear retailers Foot Locker and Dick’s Sporting Goods.

This week’s note estimates 9% compound annual revenues growth over the 2024-27 period, compared with about 6% for the wider industry.

This is built on four percentage points of underlying sales growth with the rest from new space as the group targets the United States for 40% of its store openings.

In September’s half-year results, JD pleased the City with the strength of its performance in North America. This prompted broker Peel Hunt to reiterate a price target of 250p as it said JD looked to be “tactically spot on” in all its markets.

The City firm added: “Holding profit guidance in difficult environments like these is highly impressive.”

Backing the UK stock market

Bank of America is also excited by prospects at London Stock Exchange amid the benefit of strong secular demand for data, particularly around AI technologies.

The shares have risen by around 10% since the start of October, with buying interest sustained after last week’s strategy presentations to City investors and analysts.

Highlights in the LSE update included a step-up in annual revenue guidance to mid-to-high single digit growth. This is expected to accelerate after 2024 as customers benefit from investment in platforms and the roll-out of products through a partnership with minority shareholder Microsoft.

The bank has a target price of 10,500p, believing that LSE’s current 20% valuation discount versus global data peers does not reflect an expected 13-14% earnings growth rate and the support of strong recurring revenues. Shares were today at 8,898p.

As well as potential in data and analytics, the bank adds that LSE benefits from structural trends in capital markets, such as the electronification of fixed income, and in post-trade.

Aided by lower capital expenditure forecasts, the bank believes a free cash flow yield of 5-7% provides capital deployment opportunities through additional buybacks and bolt-on acquisitions to bolster top-line growth.

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