Mike Ashley-owned Frasers (FRAS) became the latest retailer to withdraw formal guidance on Friday as the escalating coronavirus outbreak continued to wreak havoc across the industry.

The Sports Direct-to-House of Fraser owner expects the dreaded COVID-19 disease will cause significant disruption to its business, including reducing customer footfall. However, the lately-unloved shares joined in with the wider market rally, firming 5.4% to 238.4p, as investors bet balance sheet strength and a cash generative model could see Frasers through the crisis.

BRACED FOR IMPACT

In a brief trading update, Frasers explained that before the COVID-19 pandemic took hold, trading had been in line with expectations, yet now, Frasers is bracing itself for a significant impact.

Previous guidance of 5%-to-15% EBITDA growth, including the acquired House of Fraser chain but before IFRS 16 accounting adjustments, for the year ending26 April 2020 will not now be met and formal guidance for the 2020 financial year has understandably been pulled.

Frustratingly for shareholders, year-to-date performance at Frasers had been in-line with expectations prior to the coronavirus. Frasers sought to shore up investor confidence by drawing attention to its ‘strong management team which can adapt and respond quickly to challenges and changing market conditions’.

Over the longer term, deal-hungry owner Ashley and the board remain ‘confident in focussing on the company’s elevation strategy’, which Shares explained in more detail here.

Curiously though, with virus disruption ramping up a gear and retailers desperately needing to conserve cash, Frasers provided no details or comment on its continuing share buyback in today’s update.

WHY LIBERUM HAS FAITH IN FRASERS

Broker Liberum Capital commented: ‘We continue to expect Frasers to be a long-term winner and believe that the strategic nous from its M&A strategy and the benefits that should flow are not fully-appreciated.

'We also note the group’s balance sheet strength and track record of strong cash-generation’, added the broker, which currently estimates that the government’s proposed business rates holiday for retailers could save the group around £100m in the coming year.

READ MORE ABOUT FRASERS HERE

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Issue Date: 20 Mar 2020