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Broker snap: Blacks no more than a 'hold'

Charle Stanley is advising its clients to hold on to their Blacks Leisure Group shares while Sports Direct makes up its mind whether to make a cash offer for the camping and sportswear retailer.

The broker thinks that Mike Ashley, the boss of Sports Direct, has twigged that 'Blacks' Achilles heel - its onerous store leases - has now been addressed, and so Blacks is well placed to return to good profitability,' though Charles Stanley concedes that 'much work is left to be done to effect a turnaround.'

Given Sports Direct's 28.5% stake in Blacks the prospect of a rival bidder emerging is slight, but if Ashley requires the support of the Blacks board for any offer then a bid of around 100p may be required, as the current management's incentive plan payments are linked to a £1 share price.

'Our Hold reflects our concern about the threat of competitive incursion from two of Blacks' specialist competitors (Go Outdoors and Cotswold Outdoors), who have recently announced ramped up store rollout programmes. In particular, we highlight that the group is overly dependent on a small number of super-contribution stores, with the top 20% of stores accounting for 49% of the total store contribution (source: Feb 5th 2010 Blacks' proposed Equity Fund raising prospectus),' the broker concludes.

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