The Guardian

With profits and the share price soaring, JD Sport can afford to pay back its furlough cash

- Niles Pratley

Just call it an embarrassm­ent of riches at JD Sports. Profits, like the share price, are flying, to the point where the company predicts £750m for the full year, or £150m more than the City had expected, which must be the largest profit upgrade ever announced by a British retailer.

The embarrassm­ent, or difficulty, lies in the fact that JD accepted a large helping hand from the public purse – notably £61m in furlough cash – and is keeping its Covid support, a stance that looks increasing­ly hard to sustain.

Many other retailers, from Primark downwards, long ago accepted that when postlockdo­wn trading turned out better than feared they ought to pick up the tab for protecting jobs. There’s no obligation to do so, but a pattern has been establishe­d and JD, a company now worth £11bn, is an outlier.

JD said in July it would consider repaying payroll support when its full-year results were in, and it’s sticking to that script. And it’s being consistent in its fretting about further trading restrictio­ns: shareholde­rs are not getting a half-year dividend, either.

But one suspects the hesitation about returning cash to the Treasury is also influenced by the worry that if it concedes the principle government­s elsewhere might expect a contributi­on. JD trades from Australia to Thailand to Germany to the US and, in one way or another, most territorie­s launched support schemes.

The US, which now accounts for more than half JD’s profits, is the big one. JD was clearly an indirect beneficiar­y of the stimulus cheques sent by the federal government to 127m households. Would it be on the hook for a US payment if it coughs up in the UK? And, if so, how could any sum be calculated?

That seems to be the worry in the boardroom: where is the line to be drawn? But they are overthinki­ng the problem. Just follow local practice.

US sports goods retailers, all reporting knockout numbers, appear to be under no pressure to take a wider view. But the culture in Britain, when JD’s profits are also smashing pre-pandemic levels, is different. Repaying the furlough money remains the right course – and it shouldn’t take this long to reach that conclusion.

Why SSE is no GSK

Is SSE, the Scottish energy group, a sleeping giant that would be worth more in pieces? Should the exciting renewables business – wind farms and hydro power – be separated from the dull and boring business that runs electricit­y wires? That, or something like it, may be the agenda being pursued by Elliott Advisors, the activist US hedge fund also trying to shake the tree at GlaxoSmith­Kline. Elliott is reportedly building a stake at SSE.

There are a couple of odd aspects to the supposed thesis, however. First, unlike GSK, SSE has not obviously underperfo­rmed for years. It wisely got into the renewables business early and its shares stands close to a 10-year high, which is not bad for the sector. Only the last push in the share price can be said to be related to recent reports by the Betaville blog of Elliott’s stake-building.

Second, the idea that the renewables division is a hidden gem within SSE is debatable. Yes, there’s a fashion for separating “new” energy from the old, and, yes, one can find City analysts who think SSE is undervalue­d.

On the other hand, renewables are already 40% of the whole so can hardly escape analysis in the usual sum-of-the-parts calculatio­ns. Note that Jefferies analysts concluded “no deep valuation discount” when prodding the break-up question last month.

We shall await Elliott’s wisdom, but one hopes its big brains haven’t overlooked the political angle. Nicola Sturgeon may also have a view on whether one of Scotland’s biggest firms should split in two to please a New York hedge fund.

Morrisons’ pension hurdle

There was a reminder yesterday that before Morrisons proceeds to auction itself to the highest bidder there’s the important matter of the pension fund to be taken care of. Clayton, Dubilier & Rice has now cleared the hurdle by adding a few securities over properties, thereby reaching agreement with the fund’s trustees. That leaves Fortress Group, currently the under-bidder, to do the same.

There is no reason to doubt that Fortress will step up, but any delay would not look good. By way of encouragem­ent, the Morrisons board could have a quiet word and say that, unless the trustees are happy, there won’t be an auction.

Many other retailers accepted that when trading turned out better than feared they ought to pick up the tab for protecting jobs

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