Goldman ups Sports Direct to 'neutral'

Goldman Sachs upgraded Sports Direct International to 'neutral' as it removed the stock from its Sell list and lifted the price target to 350p from 260p, saying a stable FY18 pre-tax profit and the share buyback should drive a return to earnings per share growth.

It said the closure of loss-making European stores, UK space opening, the anniversary of elevated depreciation/one-off legal charges/onerous leases/dispute settlement, and a rapid share buyback programme should drive FY18 pre-tax profit of £110m, flat on the year, and EPS of 14.2p EPS, up 10%.

"In the context of a return to EBITDA progress from here, we believe an adjusted free cash flow yield in line with peers (2018E circa 5%) is credible, driving a 350p 12-month price target and a neutral rating from sell," it said.

The bank pointed out that since being added to the Sell List on 26 June, 2016, the shares are up 4% versus the FTSE World Europe up 31%.

Key risks to Goldman's view on the upside include better-than-expected like-for-like trends, opex control and/or an ability to offset the current input cost pressures.

On the downside, it highlighted a market share loss to Amazon, for example, third party brands direct to consumer channel expansion, and a weaker UK consumer pre-Brexit.

At 1250 BST, the shares were up 1% to 356.57p.