Thursday’s news essentially safeguards JJB’s future for the next 24 months, in particular with Bank of Scotland renewing their facilities right out to 2015. The impending Olympic Games is an extremely important period for JJB and we believe this was likely a critical element of the attraction to Dicks. With a brightening economic outlook and the legacy stock clearance that has depressed margins now behind JJB, it is not out of the question to expect JJB to actually post a profit for 2012 – something the market has yet to begin to consider.
The initial equity tranche provides a further injection of working capital to JJB whilst the convertible loan will underpin working capital requirements and store refurbishments over the next 12 months. What is important to bear in mind is that if Dick’s do convert their Loan stock into equity then they will (unless a Takover Panel waiver is granted) trigger an automatic bid for the company.
The additional support by Adidas illustrates just how important they deem a strong alternate to Sports Direct is for the sports retail sector. JJB just won’t lie down.
With a still not insubstantial short position floating around and the new equity going into secure hands, the very limited free-float is likely to act as a strong foundation for the shares to rise further.
It is Spreadbet Magazine’s opinion that the still dominant bearish sentiment and scepticism towards the stock is the ideal fertile ground in which stock bull runs are borne and that the investment by Dicks is a precursor to absorb the entire residual equity in the next 18 months. Applying a market cap/saleable square foot comparable to JD Sports on a fully diluted basis gives a realistic target of 40-45p.