In the aftermath of Peter Cowgill’s departure from JD Sports Fashion PLC (LSE:JD.), the narrative has been around governance and internal controls. Indeed, in Wednesday’s prelims, the ‘g-word’ was mentioned no fewer than 23 times.
The aim, no doubt, has been to draw a line under the exec chairman’s departure after 18 years in order to create a more accountable, transparent structure under his successor(s).
ESG is an integral part of the calculation of a company’s worth, and this focus on metrics other than the generally accepted investment ratios should be applauded – even if it has been a long time coming.
But it shouldn’t be allowed to blur the picture entirely. So, in the spirit of even-handedness, it is worth exploring the financial and operational legacy of the Cowgill era.
From a modest start
The executive chairman began his tenure at JD on March 16, 2004. He delivered his first set of full-year results for the 12 months to end-January 2005 on May 11 of the same year. JD’s revenues back then were £472mln and pre-tax profits were £2.6mln. The gross profit margin was 45.6% and JD’s underlying, or EBITDA margin was 3.7%.
The latest numbers underline what Cowgill has overseen in his time at the helm of JD – the utter transformation of the business. Its revenues in the last financial year were £8.5bn, the gross profit margin has grown to 49.1% and the EBITDA margin to 18.7%. As well as marking a step-change in performance, those numbers are also well ahead of the nearest competition – Frasers Group, owner of Sports Direct.
Conservative financial management means JD is sitting on a cash pile of £1.18bn, equivalent to around a fifth of its current market capitalisation. By contrast, it had net debt £31mln back in Jan. 2005.
What the City says
The City likes the company, in spite of its recent travails. That’s possibly because analysts can spy a bargain. The shares have lost around 47% of their value in the year-to-date, pushing them into the oversold category.
So, of the 13 abacus rattlers logged as following JD, 12 are positive with either ‘buy’ or ‘outperform’ recommendations, while the other is neutral on the stock. The consensus target price is 228p, which is just over double the current share price.
The outlook
JD is predicting a flat year after a record 12 months. And that’s to be expected given the cost-of-living crunch affecting the economy. However, stock pickers appear confident the company can weather the storm.
They reckon top-line growth will be driven by acquisitions, presumably financed from its huge cash pile. At the same time, increased costs are expected to be passed directly onto the consumer.
In conclusion
Since Cowgill’s anointment, the share price has soared 5,800%, though the total return, including dividends, will be much, much higher.
That’s a hard act to follow.