Top UK Stocks: JD Sports shares pop to fresh highs as profits jump

JD Sports profits are set to surge this year, Ocado’s results suffer after the fire at Erith, Trainline returns to profit as train travel recovers, Made delivers record results, and BHP reveals it will transfer a smaller than expected clean-up bill to Woodside.

UK

Top News: JD Sports sees athleisure demand push up profits  

JD Sports Fashion said it expects to report a significant jump in profits this year after posting strong growth in the first half, but said shareholders will have to wait until the end of the year to find out what it will payout in dividends.

JD shares were up over 8% in early trade this morning at 1134.5p, marking a fresh all-time high.

Revenue jumped to £3.88 billion in the 26 weeks to the end of July from £2.54 billion the year before, when sales were being hampered by lockdowns. That was well ahead of the £3.55 billion of sales expected by analysts.

Adjusted pretax profit, which strips out exceptional one-off costs, soared to £439.5 million from £61.9 million last year, while reported pretax profit at the bottom-line rose to £364.6 million from £41.5 million. That too was well ahead of the £291.0 million in reported profit expected by markets.

JD Sports said its newer acquisitions in the US including Shoe Palace and DLTR boosted profit in the period as its US brands benefited from the latest round of stimulus cheques paid by the government. Profits in the UK and Ireland increased thanks to strong pent-up demand upon the reopening of stores and thanks to continued strength online. It also flagged that its outdoor segment returned to profit in the period.

JD Sports said it is not paying an interim dividend despite the strong performance over fears that further restrictions could hit sales going forward – but said it could pay a ‘potentially larger full year dividend’ depending on how it performs.

JD Sports said it is expects to deliver a headline profit before tax of ‘at least’ £750 million over the full year, which would compare to the £421.3 million last year.

‘At this time, we are generally encouraged by our performance in the first few weeks of the second half although retail footfall remains comparatively weak in many countries. Assuming a prudent but realistic set of assumptions for the peak trading period ahead which take into account the absence of stimulus in the United States for the second half of the year, in addition to current industry-wide supply chain challenges, we presently anticipate delivering a headline profit before tax for the full year of at least £750 million,’ said executive chairman Peter Cowgill.

Where next for the JD Sports share price?

The JD Sports share price has been trending higher since early October, trading in a rising channel – a bullish trend. 

The price jump today has broken the share price out of the upside of the channel hitting a fresh all time high at 1145p. The RSI is now well in overbought territory so an ease back or consolidation at this level could be on the cards.  

Immediate resistance can be seen at 1085p the  upper band of the rising channel and 1066p the previous all time high.  A move below 980p the July high could negate the near term up trend. 

It would take a move below 940p the lower band of the channel for the sellers to gain traction. 

Ocado shares slump after Erith fire hits quarterly results

Ocado Group revealed that sales from its grocery arm fell over 10% in the third quarter as it came up against tough comparatives and suffered from lower capacity following the fire at its Erith fulfilment centre, which will also have a knock-on affect on earnings this year.

Ocado shares were trading 6% lower in early trade this morning at 1776.3p.

The company said the third quarter to August 29 was a tale of ‘two distinct halves’; before and after the fire at its Erith customer fulfilment centre on July 16. This understandably caused severe disruption to its ability to meet demand, although less than 1% of robotic equipment was damaged and the site was partially back up and running within just three days.

Ocado’s grocery arm, run with partner Marks & Spencer, reported a 10.6% year-on-year decline in revenue in the third quarter to £517.5 million from £578.8 million. Notably, the steep decline in sales came despite a 1.4% rise in the average orders being booked each week to 338,000 from 333,000.

Importantly, the company came up against tough comparatives from the third quarter of last year, when the pandemic was boosting demand and caused quarterly revenue to jump 54% year-on-year. Plus, in the first six weeks of the quarter – before the fire – revenue was only down 1.8% from the year before. In the other seven weeks post-fire, the disruption caused revenue to plunge 19%.

Ocado said the fire meant it lost out on around 300,000 orders and £35 million in revenue.

Still, overall third quarter revenue was 38% above pre-pandemic levels.

Ocado warned that it will book around £10 million worth of operating losses in the second half of its financial year to account for the lost orders and the ramp-up of capacity, which will negatively impact Ebitda this year. It will also book another £10 million charge to account for the loss of stock and damaged equipment. Notably, Ocado hopes to recover around half of that £20 million charge from its insurance, which will mean the total net cost will be around £10 million.

Ocado also warned that the issues with rising labour costs, mainly for drivers, will also result in a £5 million hit to earnings this year.

The company said it is growing confident going forward as capacity ramps up. In addition to Erith coming back online, capacity at its fulfilment sites in Hatfield and Dordon have both increased while fresh capacity has also become available in Andover and Purfleet. At full capacity, Ocado has the ability to meet 600,000 orders per week at present, although Erith is yet to return to full operations.

Ocado hopes to be operating at full capacity by next year and said this should allow Ocado Retail to post ‘strong revenue growth’ in the next financial year.

That will be boosted by the announcement that it will add further capacity of 65,000 orders per week with a new site in Luton, which should push up total capacity to closer to 700,000 orders per week when combined with the additional 30,000 order capacity coming from its newer site in Bicester.

Trainline returns to profit as train travel recovers

Trainline said the number of people riding on trains has reached its highest level since the start of the pandemic, allowing it to return to profitability.

Trainline shares were up 3.8% in early trade this morning at 392.1p.

Trainline said overall net ticket sales in the six months to August 31 recovered to 71% of pre-pandemic levels, which it said was the highest level since the pandemic erupted.

Notably, its top four markets overseas – France, Italy, Germany and Spain – all returned to growth in the second quarter and reported revenue that was 5% above pre-pandemic levels. Meanwhile, activity in the UK recovered to 95% of pre-pandemic levels in the second quarter and returned to growth in August.

It said the accelerated shift to buying tickets online has continued with penetration in the UK rising to 40% in the period from just 30% a year ago.

This recovery allowed Trainline to return to profit in the first half, stating adjusted Ebitda will be between £13 to £15 million. Full year adjusted Ebitda should be between £35 to £40 million, which would compare to the £25 million loss booked last year. Still, that will be below the £85 million booked in the 2020 financial year, before the pandemic hit.

‘It is reassuring to see demand for rail travel coming back strongly in all markets across Europe, following an incredibly tough period for the industry. While it remains unclear how long it will take for demand to fully return, we remain positive about the long term tailwinds for the industry, including the significant planned investment in rail capacity, particularly on high speed routes, and a growing awareness of the environmental benefits of travelling by train versus other less sustainable modes of transport,’ said chief executive Jody Ford.

Total net ticket sales in the first half was up 54% year-on-year to £1.0 billion, and came in over 179% above pre-pandemic levels. Trainline said it expects to book annual net ticket sales of £2.4 to £2.8 billion.

Made delivers record results with 61% revenue growth

Made said it delivered a record set of results in the first half of 2021, marking its first financial update since completing its IPO earlier this year.

Gross sales jumped 54% year-on-year in the first half of 2021 to £213.9 million, leading to a 60% rise in revenue to £171.0 million. Its gross margin tightened to 48.7% from 51.8% the year before.

The company said it had 1.2 million active customers over the last 12 months, up 34% from last year, while the average order value rose 12% to £244.

Made said its loss before tax narrowed to £10.1 million from £15.2 million. It said that included its one-off IPO costs and £5.4 million worth of charges.

Made completed its IPO in June at 200p per share to earn an initial valuation of around £775 million. Shares have struggled to find higher ground since, but were up 2.1% in early trade this morning at 158.0p.

Made ended the period with net cash of £175 million compared to just £43.2 million a year earlier as its bank balance was bolstered by the £100 million raised through its IPO and £30 million of free cashflow in the first half, up from £25 million the year before.

‘Thanks to our agile business model and supplier relationships, we are well-positioned to navigate the industry-wide global supply chain disruption, which is expected to continue into the first half of next year. We have multiple levers to drive superior growth and will continue to strengthen our model through the ongoing implementation of our strategy: to invest in our unique customer proposition through further developing our curated, design-led range, enhancing customer experience, investing in our brand and expanding internationally. I am confident in the outlook for the Full Year and in MADE's long-term growth,’ said chief executive Philippe Chainieux.

Made said it is expecting gross sales to grow by around 40% over the full year and that annual revenue should grow by around 65% to £410 million. It is also expecting to report positive Ebitda if the problems in the supply chain do not worsen. Longer-term, Made is aiming to hit annual gross sales of £1.2 billion by 2025.

BHP to transfer smaller clean-up bill than expected to Woodside

BHP Group will transfer just $3.9 billion in oil and gas decommissioning liabilities to Woodside when it merges its petroleum unit with the Australian firm, new information in the company’s annual report has revealed.

BHP filed its annual report for the year to the end of June 2021 and said its petroleum assets include ‘property plant and equipment and closure and rehabilitation provisions of approximately US$11.9 billion and US$3.9 billion, respectively.’

The amount of rehabilitation provisions to be shifted to Woodside as part of the deal was not announced when the deal was originally struck, but has come in much lower than anticipated. For example, Citigroup had estimated that decommissioning provisions for Australia’s Bass Strait would cost around $3.4 billion alone, while Credit Suisse was expecting Woodside to inherit as much as $5 to $7 billion in provisions from BHP’s petroleum division.

BHP shares were trading down 2% this morning at 2039.5p.

Morrisons bidder CD&R strikes deal with pension trustees

Clayton, Dublier & Rice, one of the suitors locked in a bidding war for Morrisons, has reached an agreement with the pension trustees of the supermarket chain.

CD&R is hoping that the agreement will provide additional security and extra ammunition to its takeover offer.

The takeover battle between two US private equity groups – CD&R and Fortress - will go to auction in the hope of bringing a fruitful end to a drawn-out process, with the hope that shareholders will get to vote on the winner’s proposal around October 18.

In early August, Morrisons accepted an offer from a consortium led by the owner of Majestic Wine, Fortress, that is worth 272p per Morrisons share, comprised of 270p in cash and a 2p dividend. However, it then went on to accept a separate bid from Clayton, Dublier & Rice worth 285p per share in cash. For now, the official view of Morrisons backs the higher offer from CD&R.

Morrisons shares were largely unmoved by the news as the price continues to track the takeover offers, with the stock trading at 291.3p this morning – signalling that investors are still hoping for a higher offer.

‘We are pleased with the progress made and CD&R's ability to provide the necessary support and reassurance to the Schemes. CD&R has been proactive in its engagement with the Trustees, with discussions progressing positively and decisively, delivering a positive outcome for all members of Morrisons' pension schemes,’ said chairman of the trustees, Steve Southern.

On Tuesday, Morrisons chair Andrew Higginson said the company was pleased that CD&R had struck a deal to safeguard its pension schemes.

‘The Morrisons board is pleased that the Trustees and CD&R have engaged constructively and have now reached an agreement, which safeguards the interests of the members of Morrisons' pension schemes,’ Higginson said.

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