Your case company is JD SPORTS FASHION PLC (https://www.jdplc.com/reports-presentations) listed on the London Stock Exchange. You are assessed based partly on your technical skills, but also the extent to which you understand the materials covered in the module. Good discussion should include relevant readings and examples, as well as refer tightly to your own analysis to support your arguments. The overall word count is 2500 words. You are required to provide full disclosure of necessary valuation techniques in an appendix, including full reformulation and value-relevant ratio analysis. Word limit for each section provides guidance only.
Task 1: Reformulate JD SPORTS fiscal year 2016 till the latest available annual reports (2021 preliminary results are now available). (600 words; 25%)
- a) Clearly demonstrate net operating assets (NOA), net debt, net operating profit after tax (NOPAT), and Core NOPAT, if any.
It is essential to show the full reformulation in appendix. No Excel submission is required.
- b) Briefly discuss JD SPORTS’ key fundamental information. You must discuss these key reformulated figures to reflect the case firm’s strategic choice.
- c) Discuss the theoretical role of reformulation in valuation. The discussions must include relevant literature.
- d) Analyse JD SPORTS free cash flows during the period of analysis based on reformulated cash flow statements. A full cash flow statement reformulation should be displayed in Appendix.
Task 2: Based on your reformulation, illustrate the advanced Dupont analysis. (700 words; 30%)
a) Clearly demonstrate return on equity (ROE), return on operating assets (RNOA), financial leverage, and spread of operating profitability over the analyzed period. All ratios involving balance sheet items should be based on the average balance sheet amounts.
b) Critically discuss JDSPORTS’ past and current performance in relation to its strategy and external macroeconomic and trading conditions. It is desirable that you discuss top-line performance (e.g. segment sales performance), operating efficiency, and investment management.
Task 3: Compute abnormal operating profit (AOP) during the analyzed period (250 words; 10%)
- a) Assume a constant cost of capital based on your justifications, discuss how the case firm’s AOP has developed over the analyzed period. You must briefly discuss your WACC component estimates.
- b) Critically discuss whether JD SPORTS is potentially a growth firm
Task 4: Equity recommendation. Based on your analysis above, discuss JD SPORTS intrinsic value of equity. Carefully refer to relevant academic readings, legitimate external sources of information, and your previous analyses. (950 words; 35%)
a) Your discussion should include the clear justifications of your projection of sales growth rates, detailed operating profit margin, as well as operating asset turnover.
You must clearly demonstrate the full valuation template with DCF, AOPVM, and equity value per share.