Professional analysts have more time, more data, and better access to companies than most private investors. As such, the wisdom of the City crowd is worth paying attention to, because, ultimately, you’re either going with the pros or going against them when you invest.
Investors probably know more about Sports Direct’s founder and major shareholder, Mike Ashley, than the company itself. The high-profile owner of Newcastle United Football Club floated Sports Direct on the London Stock Exchange in 2007, 25 years after having founded the business.
By 2009, Sports Direct had become the UK’s leading sports retailer — and it’s continued to grow at a staggering rate. Revenue and earnings per share have advanced at five-year compound annual growth rates of 12% and 36% respectively.
Despite the shares having soared to the extent that the stock now trades on a whopping 29 times last year’s earnings at 775p, City analysts are still keen. Seven out of nine rate Sports Direct a buy, with no sells. Goldman Sachs has the stock on its ‘conviction buys’ list.
The reason is that the breathtaking growth of the company, which last year turned over £2.2bn, is expected to continue. Analysts at Liberum expect Sports Direct to fill out the company’s limited presence in many of its 19 European markets with one or two significant acquisitions a year: “We identify potential targets which equate to over 1,000 stores across Europe and around €2bn of sales”.
St. James’s Place
Thriving wealth manager St. James’s Place, which was promoted to the FTSE 100 in March, was in the news again last month. Following the departure of superstar fund manager Neil Woodford from Invesco Perpetual, St. James’s Place announced it was pulling its funds out of Invesco and giving a £3.6bn mandate to Woodford’s new investment company.
St. James’s Place also released a strong trading update at the end of April, leading bullish analysts to reiterate their buy recommendations. At a current price of 795p the stock trades on a heady 21 times last year’s earnings, but 12 out of 14 analysts rate the company a buy, with no sells. As with Sports Direct, Goldman Sachs has St. James’s Place on its ‘conviction buys’ list.
The long-awaited news of what Barclays intends to do with its under-performing investment bank came in a ‘Group Strategy Update’ announced last Thursday.
Management said it’s creating a ‘bad bank’ of £115bn of assets (£90bn of them from the investment bank), which it will exit or run down over time. The result will be a more balanced Barclays, with the core investment bank expected to represent no more than 30% of group assets by 2016, compared with just over 50% today.
The market greeted the news by pushing the shares up 8% to 262.5p on the day, although they’ve since fallen back a bit. Bullish analysts — well over two-thirds have been bullish throughout the past 12 months — were also happy.
Investec said that while the creation of a ‘bad bank’ is merely packaging, “What does excite us is the emboldened commitment to deliver underlying costs of £16.3bn by 2015 (vs £18.5bn in 2013) against reasonable revenue give-ups”.
Meanwhile, Deutsche reckoned some of Barclays’ new 2016 ratio targets weren’t too demanding, describing a Common Equity Tier 1 ratio of above 11% and a leverage ratio of 4% as “conservatively struck”.
G A Chester does not own any shares mentioned in this article.