Sports Direct drops as Jefferies urges Ashley to take company private

Jefferies said: “Recent events highlight a widening gulf between Mike Ashley's long-term vision and growing governance concerns in the City.

“We believe the shares currently price in an over-pessimistic outlook, and Mr Ashley should consider taking SPD private given the group's free cashflow generation and underleveraged balance sheet.”

The bank suggested Ashley use £400m of his own money and around £1bn in loans to buy out investors holding the remaining 45% of the retailer.

It noted the bad start to 2016 which saw Sports Direct issue a profit warning in January after poor Christmas sales and said it has cut its estimates for this year to reflect this.

“At this juncture we assume only limited success in SPD's efforts to better position itself at the fashion end of the market despite recognising the capex requirements of shifting the store portfolio to a mix more conducive to a wider customer audience,” the bank said.

Jefferies maintained its ‘buy’ rating on SPD.

Sports Direct shares tumbled in early January after the retailer said it was no longer confident of meeting its adjusted underlying core earnings target for the full year due to deteriorating trading conditions on the high street and unseasonal weather over Christmas.

The profit warning came just a month after a damning report in the Guardian revealed - among other things - that many of the company’s warehouse staff were being paid an effective rate of about £6.50 an hour against the statutory rate of £6.70.

Sports Direct later hit back at the claims, saying criticism of the way it treats its staff was “unfounded” and on 31 December, the retailer said that as of this year, its directly employed UK staff and directly engaged casual workers would be paid above the National Minimum Wage.

At 1330 GMT, Sports Direct shares were down 2.5% to 399.70p.