Shareholders in Sports Direct (LSE: SPD) were greeted with yet another setback at the end of last week when the company warned that recent currency movements would have a substantially negative impact on its full-year earnings. In last month’s trading update the group provided guidance suggesting underlying earnings for FY2017 before interest, tax, depreciation and amortisation (EBITDA) would be around £300m based on an exchange rate of $1.30 to the pound. However, in the wake of recent sharp falls in the value of sterling, the company is now suggesting the EBITDA figure is likely to be £15m below September guidance.
Punished enough
The UK’s largest sports goods and apparel retailer has had a torrid time this year with an endless stream of bad news. Negative publicity surrounding the company’s working practices and treatment of staff was followed by the uncertainties thrown up by the result of the EU referendum, and now last week’s profits warning has just added to the company’s woes. The resulting share price collapse has meant that the Mansfield-based retailer is currently the biggest faller in the entire FTSE 350 over the past year, not a great accolade.
No doubt there will be much doom and gloom for existing Sports Direct shareholders whose shares are now worth less than a third of their April 2014 peak of 922p. But then again, there may be contrarians, myself included, who feel that Sports Direct has surely been punished enough and the impact of a succession of downward earnings revisions is well and truly baked-into the depressed share price. With the company’s price-to-earnings ratio falling to just 11 for fiscal 2018, brave contrarians may want to take a closer look at the retailer as a decent long-term recovery play.
Return to growth
The UK’s largest estate agency Countrywide (LSE: CWD) announced recently that it had sold its remaining stake in Zoopla Property Group for £29.2m. It was revealed that Countrywide had sold just over 9.2m shares in the property website over a six week period between 9 August and 21 September, after seeing Zoopla’s share price rise 57% over the previous 12 months. Countrywide says it will use some of the proceeds to help reduce debt, leaving the rest for other general corporate purposes.
In contrast to Zoopla, Countrywide has been a poor performer this year, shedding half its value with the market anticipating a second successive year of falling earnings for 2016. But the future isn’t so bleak, with analysts expecting a return to growth next year. That would the battered shares trading on an attractive valuation of just seven times forecast earnings for 2017 and offering a meaty dividend yield just shy of 8%. Countrywide looks like a buy for contrarians hoping for a long-term recovery, with a chunky income bonus while you wait.
