Mike Ashley’s big brands could enrich his portfolio

Mike Ashley, founder of Frasers Group (the Sports Direct company), has a very divided opinion.

Some dismiss the billionaire businessman as a Machiavellian predator who likes fighting too much.

He is currently locked in a battle to become chief executive of fast fashion brand Boohoo, which yesterday appointed another person to the role.

But as an investor, maybe you should think differently.

Ashley, 60, is considered one of a trio of retail ‘consolidators’ – the merchant tycoons who can enrich your portfolio.

In France, Bernard Arnault, “the cashmere wolf” and king of the consolidators, has turned LVMH into a £250bn-plus empire by buying up luxury fashion houses.

In this case, Lord Wolfson has turned retailer Next into a £12bn conglomerate by acquiring sometimes problematic names.

A series of strategic maneuvers have allowed Ashley, former owner of Newcastle United football club, to form a £3bn group, funded by internally generated capital. This is a complicated feat in the brutally competitive retail industry.

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

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

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

“The business is a strong value creation machine, which we hope can create more value for shareholders in the future.”

Ashley started out in 1982, opening a ski and sportswear shop in Maidenhead, Berkshire, thanks to a loan from her 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 annual sales of £5.5 billion. This is the result of Sports Direct expanding to a chain with 715 stores worldwide, but also relentlessly acquiring stakes in other businesses, including during Ashley’s highly controversial period as owner of Newcastle United.

This varied shopping list includes Evans Cycles, Game, streetwear store Flannels, preppy clothing maker Jack Wills, Savile Row tailor Gieves & Hawkes, plus a stake in fast fashion label Asos. Recent additions include online retailer THG’s luxury goods websites, three small shopping malls and 15 per cent of Australian footwear company Accent.

The purchase of department store chain House of Fraser in 2018 may be one of the few major purchases Ashley regrets.

But it allowed it to change the name from Sports Direct to Frasers in 2019, a name more in line with its shift towards luxury operations.

Since the rebrand, Fraser shares have risen more than 140 per cent to more than 765p. At this level, they are valued at nine times earnings, making them look cheap compared to retail major Next, with its price-to-earnings (p/e) ratio of 15.

Excited by this prospect, Jefferies brokers have set an ambitious price target of 1,300 pence. The average target is 1,079p.

These estimates suggest that Ashley’s activities are worth supporting. Michael Murray, who is married to Ashley’s eldest daughter Anna, may have been installed as Fraser’s chief executive, taking 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 attempt to make the managers of his target businesses perform better. He doesn’t get a salary. But Frasers does foot the bill for the use of private jets. As part of its new efforts, Ashley is said to be interested in expanding the reach of Frasers Plus, the company’s buy now, pay later (BNPL) service to other retailers.

Such is her current state of determination that Shore Capital’s Clive Black told Ashley’s fanbase that they should “pull out the popcorn” and watch what happens next in Ashley’s latest battles.

It has abandoned a £111m bid for British luxury handbag maker Mulberry, in which Frasers is the second-largest shareholder with a 37 per cent stake.

The largest shareholder is Challice, a company owned by Singapore-based hoteliers Ong Beng Seng and his wife Christina. But despite Ashley’s decision to walk away, her intervention has put the spotlight on the questionable status of Mulberry, the name behind the Bayswater stock exchange.

The company’s shares have fallen 84 percent over the past decade, in a drop that surely must have caught Arnault’s attention.

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

Currys’ share has been reduced. But another strategic investment made in the summer of 2023 – a 27 per cent stake in loss-making fast-fashion company Boohoo – will become an even more contentious issue.

A fortnight ago, Ashley demanded to be named the company’s chief executive, apparently unconcerned that Frasers’ stake in Asos, Boohoo’s main rival, presents a potential governance problem.

He will be irritated by the appointment of Dan Finley, the boss of Debenhams, to the job, but he will probably be even more determined to thwart Boohoo’s plans.

Ashley is unhappy with all aspects of Boohoo and argues that it is going through a “leadership crisis”. In particular, he criticizes the recently announced £222m refinancing package as a short-term solution to the company’s problems. These largely arise from the invasion of Shein and Temu, the Chinese fast fashion giants.

In June 2020, Boohoo shares were worth 413 pence. They have plummeted to 30.6p. The Chinese incursion may be to blame, but Boohoo’s debt is considerable.

There is more. American customers were supposed to be supplied from a warehouse in Pennsylvania, but it is now closed.

This summer, Boohoo was forced to reverse its plan to give £3m in bonuses to co-founders Mahmud Kamani, Carol Kane and John Lyttle, who stepped down as chief executive last month.

People close to the matter say Ashley is one of the few people who would want to replace Lyttle or be able to address the mess.

But Boohoo directors, who describe its claims about the business as “inaccurate and unfair”, are unlikely to agree.

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

But it is unlikely that Ashley has forgotten this episode.

After all, he is the man who launched a £50m lawsuit against US investment bank Morgan Stanley for “snobbery”. The legal action was withdrawn in May.

Anyone considering betting on Ashley’s combination of insight and assertiveness should be aware that not everything she touches turns to gold.

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

I’ve invested some money in the Aurora trust because its share price is at a discount to its net asset value, making it a cheap route into Frasers and other UK stocks. But I will look to pump some cash into Frasers as I like investments with appreciation potential and entertainment value.

If Ashley can combine the best of Arnault and the best of Buffett, investors wouldn’t have much to complain about, although the man himself almost certainly doesn’t like these comparisons.

Because there is only one Mike Ashley, whether you love him or hate him.