Leading shares fall back after earlier heading for three week highLeading shares spent much of the day heading for a three week high on hopes that a Greek deal would - finally - be done after both sides seemed to be edging towards an agreement.But a touch of last minute nerves got the better of investors, given there are still hurdles to overcome before anyone signs on the bottom line. So after touching 6856 the FTSE 100 lost some of its early gains to close up just 9.20 points at 6834.87. German and French markets fared better, up 0.7% and 1% respectively, while the Athens market jumped another 6.11%.We think that the introduction of a click and collect offer has boosted sales for Sports Retail and USC stores. Sports Direct has also improved its online offer in other ways, eg through a “fast-pay” checkout solution. This should help to differentiate Sports Direct from other discounters. Although we think click and collect is margin dilutive, Sports Direct is protecting its margin through charging for online services and overall margin should continue to rise in 2016 owing to a higher weighting of higher priced own label product.The integration of Austria is taking longer than originally anticipated as the business model has had to be rebuilt and as we think Sports Direct will take a while to change the culture and business practices of the business. Also Sports Direct’s own brands are less well known in mainland Europe and the weaker euro versus the pound will act as a headwind on sales in the short term. However, we expect a gradual improvement and Sports Direct has easy trading comparisons coming up this Winter.We see current valuations of Johnson Matthey as an attractive entry point; it is trading near its long term average PE despite solid earnings potential and sweet spot cycle for its key business: emission catalysts. We have argued over the past few years that the quality of the M&B estate has been inconsistent with the valuation. With the shares edging up to our price target, we believe the re-rating relative to peers is close to complete.Much has improved from a corporate governance perspective, and under chairman Bob Ivell, chief executive Alistair Darby has been in place since 2012, a number of independent non-execs have been appointed, and there has been no obvious disagreement between the company and its major shareholders. There have also been some signs of operational improvements, such as food volume growth. The December 2016 PE of 11.3 times looks undemanding in absolute terms, but we believe operational improvements are now required before arguing for a further re-rating. Continue reading...
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