Shares inSports Direct International (LSE: SPD) are sliding this morning after the company reported half-year profits that came in below expectations.
Profits at the group rose by a quarter in the last six months, despite last years figures being boosted by the FifaWorld Cup. But the groups underlying profit figure of 166.4m was lower than analysts had been expecting. Analystswere ready forthe company to report underlying profits as high as172m.
After todays update analysts now expect Sports Directs profits to fall by 2% to 3% for the full year, even though headline figures for the past six months showed pre-tax profits increasing 25% from 149.7m to 187.3m.
At the timeof writing, Sports Directs shareshave fallen 10% in early trade and its easy to see why. City analysts had been expecting the company to report earnings per share growth of 11% in the year to 30 April2016. As a result, Sports Directs shares were trading at a high growth multiple of 16.1 times forward earnings. However, now earnings are set to fall this year, the market no longer seems willing to pay a high multiple for the companys shares.
But even after falling nearly 10%, Sports Directs shares still look expensive. Based on last years earnings figure of 38.9p, at 600p theshares are trading at a historic P/E of around 15. With this being the case, Sports Directs shares could have further to fall as the companys valuation re-adjusts to the groups slower rate of earnings growth.
Joining Sports Direct on the loser board isOld Mutual (LSE: OML). Shares in Old Mutual have fallen 5.5% in early trade following theshock move by the South African government to replace its finance minister. The expulsion of the minister sent the countrys currencycrashing to a record lowof 15.38 rand per dollar on Wednesday. Five years ago therewere6.7randto the dollar.
Old Mutual has its roots in South Africa and the company still has a strong presence there via its ownership ofNedbank. Profits at Old Mutuals South African arm increased 14% during the first half of theyear, but a weakeningrandwill dentthe groups South Africa performancegoing forward.Theres also the effects a weak rand will have on the countryseconomy to consider.
That being said, theres more to Old Mutual than its South African operations. The group has businesses across Africa and is building a leading retail investment business here in the UK.
Still, 45% of Old Mutuals first-half adjusted operating profit came from its South African Nedbank subsidiary, while 37% came from the groups other emerging market operations. And the remaining18% of adjusted operating profit was from Old Mutual Wealth and institutional asset management.
All in all, its unlikely that Old Mutual will escape from South Africas currency turbulenceunscathed. But for incomeseekers,this could be the perfect time to buy the companys shares. Old Mutual currently supports a dividend yield of 4.5% and the payoutis covered twice by earnings per share.
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