Merrill Lynch delivered a hammer blow to Sports Direct, the embattled sports retailer, today by advising investors to sell the shares for the first time since it helped to float the business ten months ago.

Mal Patel, a retail analyst at the investment bank, slashed his earnings forecasts for the company by 30 per cent for this year and next and said the stock was worth just 80p.

Sports Direct shares fell more than 7 per cent, or 7.5p to 94.25p. It floated at 300p in a move that handed founder and deputy chairman Mike Ashley a £929 million windfall.

In a damning note, Mr Patel said the stock market was “distrustful” of the company and added there was “little merit” in holding the shares.

He forecast a 15 per cent plunge in like-for-likes in the current financial year and said a series of clearance sales were likely to have caused a “material erosion” in gross margins.

He believes underlying earnings in 2007-2008 will be £130 million, against earlier estimates of £185 million.

The note from one of Sports Direct's joint brokers marks another milestone in the deterioration of Mr Ashley’s relationship with the City.

Merrill floated the business with Credit Suisse and Citigroup in March and has been blamed in some quarters for the subsequent fallout as Sports Direct’s fortunes have plummeted.

Sources close to Merrill counter that the bank has done all it can to encourage the company to improve its dialogue with the investment community.

Mr Ashley is still to appoint a non-executive chairman, despite searching for one since July, and has refused to divulge detailed trading updates.

He has dismissed critics as “cry babies” and frustrated shareholders by buying stakes in rivals such as adidas and Blacks Leisure, owner of the Millets chain.

The purchases have pushed up Sports Direct’s interest bill at a time when the company is battling the high-street downturn.

A programme of share buybacks has also seen the tycoon’s stake in Sports Direct rise back from 57 per cent to just under 68 per cent, prompting speculation he will take the company back into private ownership.

An extraordinary general meeting has been called ahead of next week’s interim results to ask investors permission to extend the buyback programme.

Mr Patel said: “Investors appear to have held on to a combination of hopes: that this is a uniquely scaleable and sustainable business model; that its impressive historic performance must count for something; and that improved communications and strengthened corporate governance would drive a re-assessment of the business.

“Unfortunately, the evidence of the last ten months has little to sustain these hopes.”

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