LIVE MARKETS-Sportswear sector's cyclical down-cycle is ending - BofA

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SPORTSWEAR SECTOR'S CYCLICAL DOWN-CYCLE IS ENDING - BOFA

The listed sportswear universe has reported organic growth data below the long-term average for six consecutive quarters, but Bank of America sees this trend reversing and for this sector to enter an upcycle by the end of this year.

"Key drivers: the almost-completed normalisation of inventories and product innovation coming through (relaunches from adidas, Puma and, later, Nike)," they say.

BofA has reinstated coverage of some European sportswear stocks, including Switzerland's On Holding ONON.K with a buy rating and the same for the UK's JD Sports JD.L. Germany's Adidas ADSGn.DE gets a neutral rating and Puma PUMG.DE underperform.

They say the scale of the sector's upcycle will depend on a number of factors; namely a lower savings rates, dynamic household income growth and higher spend by retail clients.

"The ending downcycle, the leaders' operational underperformance (Nike and adidas) and the fragmentation of the industry have raised the risk perception of the sector," they say.

This backdrop has led to a big de-rating of the sector, which is trading around 1.4x on a 12 month forward PE ratio versus the MSCI world index, compared to 1.7x five years ago and on average since 2007.

"...the current valuation creates an attractive entry point given the sector's unchanged long-term trading range, most often at 1.5-2.0x," says BofA.

(Lucy Raitano)

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