Sports Direct shares leap after Morgan Stanley initiates stock at 'overweight'

Shares in retailer Sports Direct rose 2% to trade at 619p after Morgan Stanley started coverage with an ‘overweight’ rating, say traders.

The stock’s rise on Wednesday came after Morgan Stanley said Sports Direct has the potential to replicate its UK success in many European markets.

“Even after discounting our valuation by 20% to reflect corporate governance issues, we think the shares are attractive,” said the bank.

It slapped at 700p target price on the retailer.

Morgan Stanley described Sports Direct as a ‘British Champion’, noting that over the last 15 years, the company has emerged as the dominant player in the UK sporting goods market.

“Much of its competition has gone out of business altogether and today the company enjoys retail market shares above 50% – the highest of any retailer we cover,” the bank highlighted.

On overseas expansion, Morgan Stanley said the sporting goods market in continental Europe is worth €50bn per annum, but Sports Direct has only around 1% market share there.

“We believe that its value-based proposition, which has been so successful in the UK, is likely to work in many (but not all) European markets,” the bank said.

It sees Germany and the Netherlands as the key opportunities but said it is “fairly ambivalent as to whether Sports Direct chooses to expand (in both countries) organically or via acquisition".