Mike Ashley’s big brands could enrich your portfolio

Mike Ashley, founder of Frasers Group – the Sports Direct business – sharply divides opinion.

Some dismiss the billionaire entrepreneur as a Machiavellian predator who is too fond of a fight.

He is currently engaged in a battle to become chief executive of fast fashion firm Boohoo, which yesterday appointed somebody else for the job.

But as an investor, maybe you should think differently.

Ashley, 60, is regarded as one of the trio of retail ‘consolidators’ – the shopkeeper tycoons who can enrich your portfolio.

In France, Bernard Arnault, ‘the wolf in cashmere’ and king of the consolidators, has built LVMH into an £250bn-plus empire by buying luxury fashion houses.

Here, Lord Wolfson has turned High Street retailer Next into a £12bn conglomerate through the acquisition of sometimes troubled names.

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

As one observer, who prefers to remain anonymous, puts it: ‘Ashley is Britain’s Arnault, only with a paunch.’

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

Channon says: ‘We believe that, despite a 40-year track record of exceptional capital allocation and operational execution, the strengths of Frasers are frequently underestimated by investors

‘The business is a robust, value-compounding machine – which we expect to be able to create further value for shareholders into the future.’

Ashley started out in 1982, opening a ski and sportswear shop in Maidenhead, Berkshire, using 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 annual sales of £5.5bn. This is the result of the expansion of Sports Direct into a chain with 715 stores worldwide, but also because of the relentless scooping-up of stakes in other businesses, even during Ashley’s highly contentious spell as the owner of Newcastle United.

This varied list of purchases includes Evans Cycles, Game, streetwear store Flannels, preppy outfitter Jack Wills, the Savile Row tailor Gieves & Hawkes, plus a stake in fast fashion firm Asos. Among recent additions are the luxury goods websites of the online retailer THG, three small shopping centres and 15 per cent of Australian shoe company Accent.

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

But it did allow him to rebrand Sports Direct as Frasers in 2019, a name more in keeping with its shift into upmarket operations.

Since the rebranding, Frasers shares have risen by more than 140 per cent to more than 765p. At this level, they are valued at nine times earnings – which makes them look cheap relative to retail’s top star Next with its price-earnings (p/e) ratio of 15.

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

These estimates suggest that Ashley’s activities are worth backing. Michael Murray, who is married to Ashley’s eldest daughter Anna, may have been installed as Frasers chief executive, taking charge of the day-to-day running of the group.

But Ashley, who owns 73 per cent of the shares through his Mash Holdings vehicle, continues to be his usual hyperactive self, resolute in his drive to make managers of his target businesses perform better. He does not draw a salary. But Frasers does meet the bill for his use of private jets. As part of his new endeavours, Ashley is said to be keen to extend the scope of Frasers Plus, the company’s buy-now-pay-later (BNPL) service to other retailers.

Such is his current state of determination that Clive Black of Shore Capital told the Ashley fanbase that they should ‘get out the popcorn’ and watch to see what unfolds next in the latest Ashley battles.

He has abandoned a £111m bid for the luxury British handbag maker Mulberry – in which Frasers is the second largest shareholder with a 37 per cent slice.

The largest shareholder is Challice, a business owned by the Singapore-based hoteliers Ong Beng Seng and his wife Christina. But despite Ashley’s decision to step away, his intervention has highlighted the challenged state of Mulberry, the name behind the Bayswater bag.

The company’s shares have tumbled by 84 per cent over the past decade, in a decline that must surely have caught the attention of Arnault.

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

The Currys stake has been reduced. But another strategic investment made back to the summer of 2023 – a 27 per cent slice of the loss-making fast fashion firm Boohoo – is set to become an even more contentious issue.

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

He will be riled by the naming of Dan Finley, the Debenhams boss, to the role, but probably even more determined to thwart Boohoo’s plans.

Ashley is unhappy with every aspect of Boohoo, arguing that it is in the grip of a ‘leadership crisis’. In particular, he finds fault with the recently announced £222m refinancing package, considering it a short-termist solution to the company’s woes. These arise largely from the encroachment of Shein and Temu, the Chinese fast fashion giants.

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

There is more. US customers were to be supplied from a warehouse in Pennsylvania, but this has now been closed.

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

Individuals close to the affair say that Ashley is one of the few people who would wish to replace Lyttle, or would be able to tackle the disarray.

But Boohoo’s directors, who describe his claims about the business as ‘inaccurate and unfair’, are unlikely to agree.

It is not known whether Ashley is still riled that Aim-listed Boohoo beat him in the chase to acquire Debenhams out of administration in 2021.

But it is unlikely that Ashley will have forgotten this episode.

He is, after all, a man who launched a £50m lawsuit against the US investment bank Morgan Stanley over ‘snobbery’. The legal action was dropped in May.

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

The £52m purchase from administration of the designer e-commerce platform Matches was meant to boost Frasers Group’s luxury credentials. But the deal was doomed, and Matches was put into administration in March, sparking huge ire among customers and suppliers.

I have put some money into the Aurora trust because its share price is at discount to its net asset value, making it a cheap route into Frasers and other UK shares. But I will be looking to trickle some cash into Frasers since 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 would little to complain about – although it is almost certain that the man himself dislikes these comparisons.

For there is only one Mike Ashley, love him, or hate him.

DIY INVESTING PLATFORMS

AJ Bell

AJ Bell

Easy investing and ready-made portfolios

Hargreaves Lansdown

Hargreaves Lansdown

Free fund dealing and investment ideas

interactive investor

interactive investor

Flat-fee investing from £4.99 per month

Saxo

Saxo

Get £200 back in trading fees

Trading 212

Trading 212

Free dealing and no account fee

Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.

Compare the best investing account for you