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Home / Blog / blog / Trader’s Corner || Fresh kicks for teen favourite; pedal power propels auto-giant || 7-5-2020

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Trader’s Corner || Fresh kicks for teen favourite; pedal power propels auto-giant || 7-5-2020

Fashion favourite JD Sports was kicked by the Competition and Markets Authority, which blocked its £90m takeover of competitor Foot Asylum, this week.

Shares in the sports retailer fell 1.4 per cent after the news, although they have regained ground now standing at 518.20p at the time of writing.

The UK watchdog has ruled that JD Sports will have to sell FootAsylum, which has been operating as a standalone business throughout the investigation, as the merger would lessen competition among key brands such as Nike and Adidas.

The controversial decision met a flurry of criticism from analysts who believe it relies on an ‘outdated analysis’ of the UK retail landscape. Analysts at Shore Capital said: “In our view, this looks like a heavy-handed regulatory approach and may have widespread implications for future retail M&A. Sports retailing is a global industry with third party brands competing for consumer’s share of spending.”

So, is this a worrying blow for the teen’s top brand or can it continue putting its best foot forward?

JD Sports was in a strong position prior to the coronavirus – it had built up a firm following amongst trendy teens, a strong global presence and was in a robust financial position. Last month analysts Peel-Hunt tipped the retailer to be one of the post-pandemic winners and Shore Capital believe this is still the case despite the CMA ruling, saying: “Whilst today’s CMA announcement is disappointing for JD Sports, we still highlight the international growth prospects of the company, particularly in the US, together with a strong balance sheet and tight stock and cash controls in the business.’

Online supermarket Ocado saw a huge 40 per cent boost in second quarter sales, sending its share price up five per cent this week.

It sent its stock to a new record high, up 30 per cent year-to-date, and now standing at 1,779.50p at the time of writing.

In its trading update, Ocado said first quarter sales had also risen by 10.3 per cent but normal shopping behaviours were returning and that ‘the number of items per basket appears to have passed its peak but still remains high.”

The retailer suspended its full year guidance though saying it could not accurately forecast likely outcomes until the full extent of the current pandemic was known.

So, has Ocado reached its peak or could its share price keep rising?

The online grocer also disclosed that it has £1.2 million in cash and its £750m tie in with Marks and Spencer’s to start delivering its food, is still on track to launch in September.

Analysts seem to think the retailer still has room for growth – Numis retained its ‘buy’ recommendation and target price of £24 – with analyst Simon Bowler saying that its technology ‘supports a superior proposition and profitability’ and the share price is therefore ‘underpinned by conservative assumptions on the embedded value in current deals’.

Auto- retailer Halfords has accelerated sharply, upgrading its profit forecasts for the year to the end of April and sending share prices soaring 17 per cent.

Now standing at 144.71 p at the time of writing, Halford’s shares have risen 177 per cent since their lowest point in Mid-March.

Sales in April for the auto and cycling giant, which has remained open throughout the pandemic, only fell 23 per cent which was better than expected and the profit upgrade means Halfords is likely to hit the upper end of its £50-£55 million target.

Halfords cited a surge in cycling interest, as people look for socially distanced friendly leisure activities, as part of the boost to its sales.

So, can pedal power continue to propel the retailer forward or could the brakes come on soon?

Analysts are optimistic – Peel-Hunt described the shares as fabulously cheap and added: “We do not see the strong performance in cycling slowing much. There will be some drag forward of summer bike sales, but we aren’t going to be playing or watching any team sports and cycling is an affordable, social distancing friendly form of exercise.”

Investec analyst, Kate Calvert, also described the retailer as ‘materially undervalued’ upping her profit forecast for 2021 by 76 per cent.

Whether or not Halfords can maintain its momentum remains to be seen but its currently looking like one of the winners in the coronavirus crisis.

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