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JJB Sports funding concern prompts big broker downgrade

Broker Singer has slashed its price target for JJB Sports to by more than a third to just 8p because of concerns about the retailer’s funding and punishing trading conditions.

Singer now expects a second-half loss of £9m, having previously forecast profit of £1m, bring the full-year expectation to a loss of £31m.

The 36% cut in the target price followed JJB Sports’ interim results on Tuesday. Although the retailer’s losses – which were halved in the period – came in as expected, JJB reported increased trading volatility and reliance on promotions.

The retailer said it had renegotiated the timing of a covenant test and detailed a range of contingency options in the event that it breaches covenants or faces a funding shortfall.

Singer analyst Matthew McEachran said: “The persistence of high losses, for a year longer than hoped at the time of the restructuring and equity fundraising, coupled with long lead times hindering enhancements to the range, has meant JJB’s funding is again a cause for concern.

“If consumer conditions or competition get any worse, the business may have to take alternative courses of action to avoid a breach [of covenants]. Even if conditions do not worsen any further, JJB will at best face a long drawn out turnaround, hindered by capital constraints. Both scenarios point towards another capital rise in our view, which overshadows the investment case.”

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