BUZZ-Sports Direct: weakens after Morgan Stanley downgrade

** British sports equipment retailer's shares -5.6%, bottom of FTSE 250, after Morgan Stanley (Xetra: 885836 - news) downgrades to "equal-weight" v "overweight"

** Shares (Berlin: DI6.BE - news) among worst UK midcap performers since Brexit, -32% (weaker GBP will inflate import costs); Brexit comes after tough trading year for the sports retailer which was compounded by bad publicity about the treatment of its workers

** CEO said on Thursday (co reported FY results) it is unhedged on sterling-dollar for FY17

** This lack of hedging means Morgan Stanley now assumes a 500 bps fall in gross margin in FY 2016/17e (says co has little scope to put up its prices in the near term)

** Broker says post-results meeting left it with the impression that access to branded product (i.e. Adidas (LSE: 0OLD.L - news) and Nike (Sao Paolo: NIKE34F.SA - news) ) has been a material challenge in recent months - something over which management has only limited influence

** Liberum cuts its TP for Sports Direct 340p from 470p (headwinds: lower consumer demand and lack of M&A (European opportunities limited, weakness of £ vs  makes economics less attractive)

** Consensus bearish view: StarMine's ARM model, a measure of change in analyst sentiment, shows Sports Direct strongly out of favour with investment community, scoring just 3 out of the maximum 100

** Better than feared FY results on Thursday initially triggered a rally, but shares ended the day flat (RM (LSE: RM.L - news) : pranav.kiran@thomsonreuters.com@reuters.net)