Frasers website with logo
Frasers will buy back up to £80 million worth of stock to shrink its share capital / Image source: Adobe
  • New £80 million buyback
  • JD Sports warning a recent overhang
  • N Brown stake tops 20%

Mike Ashley’s Frasers (FRAS) has launched a fresh £80 million share buyback to address a near-10% year-to-date share price pullback at the retail powerhouse behind sporting goods chain Sports Direct as well as House of Fraser and Flannels.

Analysts at Liberum believe shares in the FTSE 100 conglomerate have suffered due to rival JD Sports Fashion’s (JD.) recent profit warning and the absence of a Christmas trading update from Frasers, although this reflects its typical reporting pattern.

The buyback announcement, which triggered a 3.25% share price rally to 809p, accompanied the news Frasers had upped its stake in embattled online clothing and footwear retailer N Brown (BWNG:AIM) to north of 20%.

SHRINKING THE SHARE COUNT

Frasers, which ran several buyback programmes during 2023, said it would buy back up to £80 million worth of shares in order to shrink its share capital.

Buybacks, which have played an ever-greater part of shareholder returns in the past few years, can suggest that a management team feels a company’s shares are undervalued, so this move was seen as a vote of confidence in Fraser’s near and long-term trading prospects.

Run by chief executive Michael Murray, Ashley’s son-in-law, Frasers explained the shares repurchased will be held in treasury ‘pending cancellation or re-issue’.

The retail conglomerate has moved past its historic 'pile them high, sell them cheap' strategy

In a note published on 8 February, Liberum expressed confidence that Frasers would meet its year-to-April 2024 adjusted pre-tax profit guidance of £500 million to £550 million, representing growth of 10% year-on-year at the mid-point of the range.

‘This growth, alongside the strength of cash generation and a stand-out balance sheet, mean Frasers remains a top pick,’ said the broker.

BAGGING ANOTHER BARGAIN?

Shirebrook-based Frasers, whose sprawling collection of retail interests includes GAME, Jack Wills and Evans Cycles, has also increased its stake in Manchester-based N Brown from 19.4% to over 20%.

Shares in N Brown, an indebted retailer which is struggling with subdued sales, have declined 55% over one year and are down more than 80% over five years.

Perhaps Frasers’ management spies a bargain at the digital retailer behind the Simply Be and Jacamo brands or an opportunity to develop a relationship or partnership with the company?

Frasers has recently been increasing its stakes in embattled online fast-fashion retailers ASOS (ASC) and Boohoo (BOO:AIM) and last week increased its stake in the latter from 21.4% to 22%.

This show of faith in ASOS and Boohoo from Frasers comes at a crucial time for both companies, whose recent problems can at least partially be pinned on the meteoric rise of aggressive e-commerce colossus Shein, which is targeting further growth in the UK.

Deal-hungry Frasers also has investments in a slew of other retail names, among them technology products specialist Currys (CURY), online electricals seller AO World (AO.) and German fashion giant Hugo Boss (BOSS:ETR), and has just acquired fitness brand WIT.

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Issue Date: 12 Feb 2024