LONDON (ShareCast) - (Sharecast News) - Sports Direct's tumbling headline profits saw its shares fall 7% on Thursday but underlying numbers were much improved and some analysts felt the shares deserved a higher rating.
Earnings before interest, tax, depreciation and amortisation increased 12.2% to £306.1m and adjusted profit before tax rose 34.5% to £152.9m, which was well ahead of consensus forecasts for £295m.

"When one considers the heavy lifting as the strategic shift to the elevated store and online offering continues and the retail backdrop during the year, this is a commendable achievement with revenues marginally higher," said Liberum, upgrading to 'buy' from 'hold' and upping its share price target to 520p from 400p.

"A tight control on costs and benefits from infrastructure investment and automation has started to deliver efficiencies in the UK and Europe, delivering a 167bps improvement in operating margins."

Broker Peel Hunt's Jonathan Pritchard said it was an impressive performance from Sports Direct given that trading conditions were difficult in the second half.

He said management's "obsessive" attempts to elevate product and raise store standards was working but the aspiration to become the Selfridges of Sports looked unattainable: "Sports Direct is the naughty kid who used to be in detention every week and is now mending his ways -there's a long way still to go to become the real teacher's pet of the brands. Indeed, we believe that Sports Direct's attempts at elevation have a ceiling."

Pritchard upped his forecasts for this coming year's EBITDA number to £315m from £295m and next year's to £340m from £320m, moving his share price target to 450p but kept his rating at 'add'. "The shares have done well recently and discount some of this good news from a PE in the 20s for this year. However, the momentum is unlikely to stop today."



Shore Capital upgraded its stance on Vimto maker Nichols to 'hold' from 'sell' on Thursday following a de-rating and as the company put out its interim results. Analyst Phil Carroll said the results were "solid".

"Overall, whilst the international division performance is subdued this has been more than offset by strong UK performance where the balance of the division seems to be improving with a strong performance from Out of Home alongside the continued momentum in the Vimto brand."

ShoreCap left its full-year forecasts unchanged. The brokerage is looking for FY2018F pre-tax profit of £31.6m, growth of 3.6% year-on-year, which equates to earnings per share of 69.4p, growth of 2.5%.

"This puts the shares on a valuation of 21.6x price-to-earnings and an EV/EBITDA ratio of 15.5x with a dividend yield of 2.5%. We believe the company is demonstrating its resilience and following a de-rating we now upgrade our sell recommendation."

Ahead of Microsoft's earnings after Wall Street's closing bell on Thursday, RBC Capital Markets remained positive on the stock and reiterated its 'overweight' rating, with a $115. target price that offers upside to the $105.4 stock.

This optimism is based on the company's strength in Cloud assets such as Azure, O365, D365 and LinkedIn, coupled with good transactional performance upside to PCs and the corporate Windows 10 cycle.

Analysts have lowered first quarter estimates modestly due to FX, but remain optimistic that there are areas of upside on a CC basis.

The "key questions" this quarter include whether Microsoft can raise constant currency revenue growth rates to above 10%. "If so, our revenue estimates could be too low for FY19. We see potential for this to happen, given our conservative assumptions on PCs and Server Products, and the potential for IC revenues to surprise to the upside.

Another question is over gross margins. "Right now we assume a modest level of GM decline (20bps) due to mix - it would be optically very positive were GMs to expand."

Finally, where will Microsoft start the FY19 implied operating margin guidance. RBC is forecasting +90bps and the Wall Street consensus is at +80bps. "We could see a scenario where the initial guide is lower, but ultimately expect to see healthy margin expansion in FY19."

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