JD Sports and Dixons upgraded as RBC highlights resilience of both firms in respective markets

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JD Sports Fashions PLC (LON:JD.) and Dixons Carphone PLC (LON:DC.) have both received rating upgrades by analysts at RBC, who highlighted advantages in the business models of both firms in their respective retail markets in a note on Friday.

For JD, RBC upgraded the athleisure clothing retailer to ‘sector perform’ from ‘underperform’ and hiked their target price to 825p from 735p, saying they expected the company’s UK market to “prove relatively resilient, due to higher conversion and strong digital sales”.

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“In the UK we think JD is benefiting from strong consumer demand for sports fashion and footwear, its relatively balanced 50:50 interior/exterior facing store mix, and from its digital offer, which has performed better than expectations this year. We think JD’s budgeted store [like-for-like] sales of -20% [year-on-year] over peak look conservative, even with more restrictions on entertainment venues, which will reduce the impulse to buy sports fashion, as higher conversion should mainly offset footfall down >10% yoy”, RBC said.

The bank also said the company’s US operation offered “a strong self-help and recovery story” with trends expected to normalise in the rest of the year’s second half.

“JD has reopened its 30 stores that were shut in California and has opened this week in Times Square, New York, which should be good for the brand, albeit lacking tourist footfall short term”, RBC said.

Analysts also said they expected 50 Finish Line stores to have been converted to the JD Sports banner by the end of 2020, with JD seeing sales uplifts of at least 15% despite only US$100,000 spent per store. JD acquired Finish Line in 2018 in a deal worth US$558mln (£431mln).

Dixons boosted by UK electricals and cost reductions in mobile

For Dixons, RBC upgraded the mobile phone and electronic seller to ‘sector perform’ from ‘underperform’ and increased the target price to 100p from 75p, citing the company’s exposure to “a strong UK household electricals market and its material international presence which is performing well, albeit with likely macro headwinds to come in 2021”.

“We think a sustained improvement in home related retail spend is benefiting DC. DC generates around a third of sales from appliances, which should benefit from higher housing activity, and going forward home office equipment, TV, and gaming sales are likely to be strong, helped by console launches in November”, RBC said.

The bank added that while the company’s mobile business is currently “heavily loss making”, costs are being “sharply reduced and a cash exceptional for restructuring costs this year should be broadly offset by an unwind of postpay contract receivables”.

“Valuation is reasonable in our view with consensus profit upgrades likely to be supportive near term”, the analysts concluded.

Shares in JD Sports were up 2.4% at 796.2p in mid-morning trading, while Dixons rose 3.9% to 105p.

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