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Can Mike Ashley clean up?

The retail tycoon may yet win the game that his competitors are increasingly abandoning
Can Mike Ashley clean up?
  • Frasers’ relentless buying is paying off, for now
  • Mike Ashley has the opportunity to win the game that his competitors have abandoned
  • If he can nurture his prize holdings, there’s still a lot of profit to be made from the high street
IC TIP: Buy at 463p

The chief executive of Frasers Group (FRAS) has long been criticised for playing Monopoly with the UK high street. Now, it increasingly looks like the man maligned as “Mad Mike" Ashley for his ventures into troubled UK retailers is the only person left playing the game.

But today Mr Ashley may be laughing. In a year of devastation for the high street, his retail empire just reported it managed to lift earnings, with pre-tax profits rising nearly a fifth to £106m in the six months to October, compared to the same period last year. While overall sales were down, Frasers said it was boosted by online revenues and income from recent acquisitions. It raised the lower end of its predictions for growth in underlying earnings for the full year, from 10 to 20 per cent. 

This comes on the same morning the BBC reported the group is considering buying brands from the recently collapsed Arcadia empire, and days after Frasers said it was in talks to buy the insolvent Debenhams department stores. “We do tend to look at almost everything on the high street,” chief financial officer Chris Wootton told the Today programme.

In affirmation of that, the company also reported today it had increased its direct investment in Hugo Boss, while boosting its holding in handbag retailer Mulberry to 37 per cent.

In previous decades, Mr Ashley would have faced more of a scrap for the fallen angels of the UK high street. But with most of the industry focusing its sights on online shopping, his company's ongoing strategy of “Elevation Without Limits” seems to have left him the lone suitor for collapsed high street brands.

Now, with shoppers packing the stores after lockdowns were lifted, there may indeed be a method to his madness. Despite the rapid rise of e-commerce, online sales still made up less than a fifth of clothes and textile retailing prior to the pandemic, according to the Office for National statistics. If Mr Ashley becomes the last hungry tycoon left on the UK high street, there’s a lot of profit to be made before its prophesied collapse.

As John Stevenson, retail analyst at Peel Hunt points out, his next target, Arcadia, had many failings, but it's Topshop brand is a “crown jewel” that has been “relevant in fashion for decades”.

The same cannot be said, however, for other brands Mr Ashley is dangling his Monopoly counter over. Jack Wills, the once-popular retailer for young adults, was saved from the brink by Frasers last year. But its sales were falling off a cliff not because of the decline in physical retailing, but because its niche styles had lost their popularity.

It has been pointed out that Mr Ashley’s crusade on the high street may have more to do with personal grudges than business acumen. But there is opportunity in Frasers’ hefty portfolio if its most promising high street brands can also be turned into successful online businesses, and it may get bigger yet as the wreckage of the Covid-19 crisis leaves fresh pickings for the company’s aggressive expansion. So with shares still below their price in January, we maintain our last recommendation and say buy at 455p.

FRASERS (FRAS)

    
ORD PRICE:455pMARKET VALUE:£ 2.36bn
TOUCH:454-457p12-MONTH HIGH:536pLOW: 174p
DIVIDEND YIELD:nilPE RATIO:20
NET ASSET VALUE:257pNET DEBT:72% 
Half-year to 25 OctTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20192.049012nil
20201.8910616nil
% change-7+18+33-
Ex-div:na   
Payment:na