Mike Ashley, who owns 70% of Frasers Group (LSE:FRAS) — a member of the FTSE 100 — is no stranger to being unpopular.
When he was chairman of Newcastle United, he was voted one of the 30 most hated men in football. In 2016, a committee of MPs accused him of running Sports Direct like a “Victorian workhouse”. And three years ago, during his time as chief executive of Frasers, he faced a shareholder rebellion over concerns about the way in which he was running the group.
Perhaps Ashley himself is the reason for Frasers being so unpopular? In March, it ranked 98th on the list of the FTSE 100’s most traded stocks. In terms of the value of shares traded, only Pershing Square Holdings and Airtel Africa were lower.
With 70% of the stock controlled by one individual, there will inevitably be fewer trades placed. But I still think the company is unloved, and I’m embracing my position as a happy shareholder.
Performance
When Frasers released its results for the six months to 23 October 2022, they showed a 13% rise in revenue and a 53% increase in profit before tax, compared to a year earlier. However, over the next three trading days, its share price tumbled by 16%.
But the company has been a British success story. Bucking the trend towards online shopping, Frasers has been investing in high-street brands. Its share price has doubled over the past five years and is up 10% since the start of the year.
In its last full year of trading, the company was profitable across all its operating divisions. Despite having a reputation for heavily discounting products, its margins were also healthy.
Results by division (52 weeks to 24.4.22)
Principal brands
Revenue (£m)
Gross profit (£m)
Gross margin (%)
Operating profit (£m)
UK Sports Retail
Sports Direct, GAME and Evans Cycles
2,640
1,137
43.1
289
Premium Lifestyle
House of Fraser, Jack Wills and sofa.com
1,057
475
44.9
124
European Retail
Sports Direct and GAME
790
337
42.7
110
Rest of the World Retail
Bob’s Stores and Eastern Mountain
150
77
51.0
34
Wholesale and licensing
Slazenger, Everlast and Lonsdale
168
63
37.5
7
Combined
4,805
2,089
43.5
564
What the critics say
But the company’s price-to-earnings (P/E) ratio is close to 15. This compares unfavourably to JD Sports (13.2) and Next (11.3), two other non-food retailers in the FTSE 100.
Critics of Frasers will also point out that the company last paid a dividend in 2009. The company prefers to retain its cash to fund acquisitions. But I don’t have a problem with this. In my view, significant earnings growth is only going to come from buying other companies and brands.
Concerns would also appear to exist that the company has too much of a physical presence in our towns and cities. The company operates over 1,500 stores throughout Europe. Even Mike Ashley has admitted that the internet is “killing” the high street. Ashley has called for an online sales tax, free parking and rates relief to arrest the decline.
Also, the company has never established itself as a permanent member of the FTSE 100. It’s currently the 98th largest member of the index — with a market cap of £3.66bn — and therefore runs the risk of being demoted to the FTSE 250 at the next reshuffle. Some funds are only permitted to invest in the the UK’s largest 100 companies. Relegation from the Footsie could affect its share price.
Out of fashion
It’s not very fashionable to admit to owning shares in Frasers, but I do.
If the chief executive of the group — who happens to be Mike Ashley’s son-in-law — can get the share price to £15 by October 2025, he’ll receive a £100m bonus. I’m therefore certain that the management team is focused on delivering the growth that all shareholders, including me, are keen to see.
The post Why I think it’s time to embrace one of the most unpopular stocks in the FTSE 100! appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
Inflation recently hit 40-year highs… the ‘cost of living crisis’ rumbles on… the prospect of a new Cold War with Russia and China looms large, while the global economy could be teetering on the brink of recession.
Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
Claim your free copy now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#ffffff”, ‘color’, ‘#FFFFFF’);
})()
More reading
Why I ignored my principles and bought this FTSE 100 stock
James Beard has positions in Frasers Group Plc. The Motley Fool UK has recommended Airtel Africa Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
