Following my look at JD Sports Fashion last week, it seems logical to follow up with a look at the other major UK sports retailer:
Summary
- Frasers (LON:FRAS) is a FTSE250-listed retailer. Many will know it in its former guise of Sports Direct. This still represents the bulk of the business, with UK sports retail forming the majority of revenue and over 70% of the operating profit.
- Recently, the company has been driving a strategy of diversification and premiumisation, moving away from its roots as a value retailer. Its purchase of and partnerships with more premium brands is personified by renaming the company Frasers in 2019.
- For many years, the company has been synonymous with its CEO and founder, Mike Ashley. While he handed over the reins in 2022, he only did so to his son-in-law. With a continuous share buyback reducing the share count, his holding is now at 73%, and it is fair to say he still retains significant influence over the business.
- Deal-making remains at the heart of the business, where the typical strategy involves taking significant equity stakes in struggling retailers and buying them out. They have also been active buyers of retail businesses that have fallen into administration, using their scale and financial security to turn these around.
- Not everything has worked out. For example, they were the biggest holders in Debenhams when it went into administration and were outbid for the name and assets of the business by Boohoo. Frasers are now the largest holders of Boohoo, with 29%, and have been having a rather public battle with the founders there. Boohoo shareholders recently rejected the appointment of Mike Ashley to their board. This week, it was announced that Boohoo is going to take the Debenhams name.
- Frasers is an interesting value play. It is very conservatively financed for a retail business and trades on a P/E of just over 6. The Value Rank is 83, but it is let down by the company's preference for share buybacks over dividends and the lack of growth.
- Like many UK retail stocks at the moment, it will not appeal to momentum investors with a Momentum Rank of just 26. However, it is a reasonable quality business whose scale and brands give it a competitive advantage, and it generates a return on capital consistently above its cost of capital. If it can return to growth, it will likely add…
