You know things are bad when an accountant won’t work for you. It’s a rarity – major auditing firms refusing to take on a client – but this is the exact situation Sports Direct (LSE: SPD) now finds itself in.
This month has seen Mike Ashley’s ailing retailer have to renege on its commitment to appoint one of the ‘big four’ accountancy firms to look at its books, a necessity it found itself in after its previous auditor Grant Thornton said in July it would be quitting amid concerns over a ‘last minute’ €674m tax bill.
The news is not expected to be going down well at today’s AGM – the failure to appoint an auditor would make Sports Direct the first major listed UK business ever to suffer this particular humiliation. According to reports, shareholder advisory service Pirc is recommending shareholders vote against the company’s management, and it’s not hard to see why.
As well as the struggles with assigning an auditor and the unexpected Belgian tax bill, the company had been forced to delay the publication of its annual results and has seen its share price drop almost 50% in the past month.
In my experience this kind of massive price drop usually represents one of two things – a major and possibly unbeatable problem, or an overreaction to short-term news. Unfortunately I don’t think this is a case of the latter.
Sports Direct may be able to recover its position at some stage, but at this point I think there are just far too many unknowns and potential issues.
Where I put my money
With this in mind, if I had cash in Sports Direct, I would consider selling up right now, or at least reducing my position, and instead putting my money in the safer (I believe) investment of AstraZeneca (LSE: AZN).
The pharmaceutical giant did see a minor setback to its Imfinzi lung cancer treatment this month, but it is perhaps a testament to the company’s strength that the share price saw little impact.
Specifically the treatment is being trialled in conjunction with other medications for the combined effect on various cancers, and one such combination failed to show statistically significant results. Elsewhere the company has a strong portfolio of other medications and treatments, many of which saw better than expected sales in its latest results.
AstraZeneca also outstrips its rivals in one key area – that of generic drug sales, particularly in Asia, following the expiry of company patents. While others have seen these generics hurt sales of the premium versions massively, Astra has been working with various Chinese agencies and hospitals to provide large quantities at lower prices – a strategy that so far seems to be working to counteract the problem.
The company’s share price may not be the cheapest bargain – with the latest expectation that its P/E would come in at about 25 – and the current dividend yield of about 3% is at the lower end of what I would consider. But in comparison to Sports Direct, I think there can be no question as to where I would put my money.
Karl has shares in AstraZeneca. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.