Mike Ashley’s major brands can enrich your portfolio

Mike Ashley, founder of Frasers group – the Sports Direct activities – opinions are strongly divided.

Some dismiss the billionaire entrepreneur as a Machiavellian predator who enjoys fighting too much.

He is currently embroiled in a battle to become CEO of fast fashion company Boohoo, which yesterday appointed someone else to the position.

But perhaps you as an investor should think differently about this.

Ashley, 60, is considered one of three retail “consolidators” – the retail tycoons who can enrich your wallet.

In France, Bernard Arnault, ‘the wolf in cashmere’ and king of the middlemen, has built LVMH into an empire worth more than £250 billion by buying up luxury fashion houses.

Here Lord Wolfson has turned High Street retailer Next into a £12 billion conglomerate by acquiring sometimes troubled names.

A series of strategic maneuvers has enabled Ashley, former owner of Newcastle United football club, to put together a £3 billion group funded by internally generated capital. This is a difficult feat in the brutally competitive retail industry.

As one observer, who prefers to remain anonymous, puts it: “Ashley is the British Arnault, but with a belly.”

But Gary Channon, manager of investment fund Aurora, prefers to see Ashley as the Warren Buffett of retail. Frasers Group is the largest holding company in this British trust.

Channon said: “We believe that, despite a 40-year track record of exceptional capital allocation and operational execution, Frasers’ strengths are often underestimated by investors.

“The company is a robust, value-adding machine – which we expect will be able to create even more value for shareholders in the future.”

Ashley started out by opening a ski and sportswear shop in Maidenhead, Berkshire, in 1982, with the help of a loan from his family.

A series of acquisitions followed and the company, then known as Sports Direct, went public in 2006.

Today it is a FTSE 100 group, with 1,500 stores worldwide and an annual turnover of £5.5 billion.

This is the result of Sports Direct’s expansion into a chain with 715 stores worldwide, as well as its ruthless acquisition of stakes in other companies, even during Ashley’s highly controversial period as owner of Newcastle United.

This varied list of purchases includes Evans Cycles, Game, streetwear store Flannels, preppy outfitter Jack Wills, Savile Row tailor Gieves & Hawkes, plus a stake in fast fashion company Asos.

Recent additions include the luxury goods websites of online retailer THG, three small shopping centers and 15 percent of Australian shoe company Accent.

The purchase of department store chain House of Fraser in 2018 is perhaps one of the few major purchases that Ashley regrets.

But it did allow him to rename Sports Direct to Frasers in 2019, a name more in line with the shift towards higher-end activities.

Since the rebrand, Frasers shares have risen by more than 140 percent to more than 765 pence. At this level they are valued at nine times earnings, which makes them look cheap compared to retail star Next, which has a price-to-earnings ratio of 15.

Enthusiastic about this prospect, brokers Jefferies have set an ambitious price target of €1,300. The average target is 1,079p.

These estimates suggest that Ashley’s activities are worthwhile. Michael Murray, who is married to Ashley’s eldest daughter Anna, may have been installed as CEO of Frasers and will take charge of the day-to-day running of the group.

But Ashley, who owns 73 percent of the shares through his Mash Holdings vehicle, remains his usual hyperactive self, determined in his quest to get managers of his target companies to perform better. He receives no salary.

But Frasers is footing the bill for its use of private jets. As part of his new efforts, Ashley would like to expand the reach of Frasers Plus, the company’s buy-now-pay-later (BNPL) service, to other retailers.

Such is his current resolve that Shore Capital’s Clive Black told the Ashley fanbase to “get out the popcorn” and wait to see what unfolds next in the final Ashley battles.

He has abandoned a £111 million bid for luxury British handbag manufacturer Mulberry, in which Frasers is the second largest shareholder with a 37 percent stake.

Its largest shareholder is Challice, a company owned by Singapore-based hoteliers Ong Beng Seng and his wife Christina. But despite Ashley’s decision to resign, his intervention has spotlighted the troubled state of Mulberry, the name behind the Bayswater bag.

The company’s shares have plummeted 84 percent in the past decade, a decline that must have caught Arnault’s attention.

Currys shareholders already owe a debt of gratitude to Ashley. In June 2023, Frasers made a ‘strategic investment’ in the electronics retailer. Since then, Currys shares have risen from 52p to 85p.

Currys’ stake has been reduced. But another strategic investment from summer 2023 – a 27 percent stake in loss-making fast fashion company Boohoo – will become an even more controversial issue.

Two weeks ago, Ashley demanded to be appointed CEO of the company, apparently unconcerned that Frasers’ stake in Boohoo’s major rival Asos poses a potential governance problem.

He will be annoyed by the appointment of Debenhams boss Dan Finley for the role, but likely even more determined to thwart Boohoo’s plans.

Ashley is unhappy with every aspect of Boohoo and argues that the company is in the grip of a ‘leadership crisis’. He is particularly critical of the recently announced £222 million refinancing package as a short-term solution to the company’s problems. These largely stem from the rise of Shein and Temu, the Chinese fast fashion giants.

In June 2020, Boohoo shares were 413p. They have dropped to 30.6p. The Chinese invasion may be the cause of this, but Boohoo’s debt mountain is considerable.

There’s more. American customers were supposed to be supplied from a warehouse in Pennsylvania, but that has now closed.

This summer, Boohoo was forced to reverse its plan to award £3 million in bonuses to co-founders Mahmud Kamani, Carol Kane and John Lyttle, who left his role as CEO last month.

Individuals close to the case say Ashley is one of the few people who would like to replace Lyttle or address the disorder.

But Boohoo’s directors, who described his claims about the company as ‘inaccurate and dishonest’, are likely to disagree.

It is not known whether Ashley is still angry that Aim-listed Boohoo has beaten him in the chase to take Debenhams out of administration in 2021.

But it’s unlikely that Ashley will have forgotten this episode.

After all, he is a man who has filed a £50 million lawsuit against US investment bank Morgan Stanley for ‘snobbery’. The legal action was dropped in May.

Anyone now considering taking a chance on Ashley’s combination of wit and assertiveness should be aware that not everything he touches turns to gold.

The £52 million purchase from management of designer e-commerce platform Matches was aimed at boosting Frasers Group’s luxury credentials. But the deal was doomed and Matches went into administration in March, sparking anger among customers and suppliers.

I put some money into the Aurora Trust because the share price is below intrinsic value, making it a cheap route into Frasers and other UK shares.

But I will try to trickle some money into Frasers as I like an investment with potential for appreciation and entertainment value.

If Ashley can combine the best of Arnault and the best of Buffett, investors have little to complain about – although it’s almost certain that the man himself hates these comparisons.

Because there’s only one Mike Ashley: love him or hate him.