Mike Ashley bought a £60mn stake in Next and no one noticed
Registry data reveals that Frasers, the Sports Direct owner, has taken a punt on Britain’s biggest frock shop
Mike Ashley is on a mission. His company Frasers has this month made numerous “strategic investments” in listed rivals including Asos, Boohoo, Currys and AO World. The shopping spree adds to an investment portfolio that already included minority stakes in Hugo Boss, Mulberry and N Brown.
Here’s another name for the list: Next, Britain’s biggest retailer by market value.
Frasers last year bought 1mn Next shares with a value at the time of approximately £60mn, according to data compiled by Argus Vickers, a specialist shareholding analysis service. Its data also shows that, between the end of March and mid May of 2023, Frasers then halved the Next stake to 500,000 shares.
As far as we can see, Frasers’ investment in Next has never been reported. That’s in spite of Argus Vickers-supplied shareholder data being available (uncredited) on every Bloomberg terminal for more than a year.
Asked about the investment in Next, Frasers said it had not made any regulatory filing to that effect and declined to comment further. A Next spokesman said he couldn’t give a definite answer on whether or not Frasers was a shareholder.
Half a million Next shares carry a current value of £33.6mn but are equivalent to just 0.39 per cent of the total stock in issue, so don’t require a statement to the market. Shareholdings in London-listed companies need to be disclosed only at 3 per cent of total voting rights when the issuer is UK incorporated, or at 5 per cent for offshore issuers.
So, rather than rely on regulatory filings, Argus Vickers uses the more granular corporate holdings registers that are required by the Companies Act 2006, Section 808, but are viewable only by request. Gianluigi La Salvia, head of analytics and general manager at Argus Vickers, confirmed to Alphaville that it had supplied the data to Bloomberg showing Frasers was a Next shareholder.
Ashley remains majority owner of Frasers, having two years ago handed control of the business he founded to his son-in-law Michael Murray. The company said this week that strategic investments remain “a core part of Frasers’ DNA”:
Under [CEO] Murray’s leadership, we continue to build on our long track record of establishing supportive shareholder positions in attractive retail companies. We have a clear strategy to identify opportunities to invest in businesses which complement our existing sport, premium and luxury businesses, or help us to build and further utilise our sector-leading ecosystem.
The Next investment looks more like a punt than a way to utilise a sector-leading ecosystem, however. Between the initial purchase and its partial sale earlier this year, Next shares rallied by approximately 15 per cent.
In that way the trade has brings to mind of previous episodes when Frasers (née Sports Direct) appeared to be a vehicle for Ashley to play the markets — such as in 2014 when it took a put option in Tesco. How other shareholders have benefited from these speculative gambles is not always obvious.
Frasers’ investment portfolio of minority stakes and derivatives has a notional value of £1.9bn, or 56 per cent of the group’s market cap.
Taken at face value, this suggests the core business — which includes brands such as Evans Cycles, Game, Flannels, Missguided, USC and Sofa.com as well as House of Fraser and Sports Direct — is trading at just three times current year earnings. Frasers’ closest peer on the UK market, JD Sports, trades at 53 times earnings.
The recent shopping spree might also raise concerns about cross-ownership and antitrust. Academic research finds that by taking minority stakes in rivals a company can encourage tacit collusion, vote to vandalise strategy and take advantage of sensitive competitive information that becomes harder to keep secret.
In the UK, presumption of material influence applies automatically only when a passive shareholding hits 25 per cent. BSkyB’s forced sale of ITV shares in 2010 moved the bar to 17.9 per cent — though the more relevant precedent for Frasers might be Ashley’s free pass from UK regulators in the same year when he built a 28 per cent stake in Blacks Leisure, a rival supplier of camping goods. Ashley then rejected Blacks’ rescue rights issue the ejected its chair as the company hurtled towards administration in 2012.
Whatever the motive behind its more recent dealings they are unlikely to change a perception that, whoever he puts in charge of Frasers, Ashley will continue to do whatever he wants.
Chinese luxury goods: the bear case
China’s Communist party presides over one of the more unequal societies on earth. A yawning gap between China’s rich and poor works to the advantage of European luxury goods groups with heavy exposure to the country, with higher income apparently correlating with stronger demand for discretionary items like velvet loafers and Cartier watches.
For the vast majority of Chinese people, such extravagances feel a long way away. Overall domestic consumption is perennially depressed, a fifth of young people are unemployed and China’s post-reopening recovery appears to have fizzled out. Shanghai’s CSI 300 is up 1 per cent since January.
France’s luxury-dominated Cac 40 remains close to an all-time high. Shares in the likes of LVMH, Hermès et Richemont slipped on Monday following Goldman’s lower Chinese GDP forecasts, but investors are still pretty bullish about the largest companies in the sector, safe in the knowledge, perhaps, that — per Morgan Stanley — less than 1 per cent of customers appear to be driving almost two-fifths of sales in China’s biggest luxury malls. There is more that unites us, etc.
Writing last week, Barclays analysts said “lower-for-longer growth” poses a “visible risk for the Chinese luxury growth thesis in the mid-to-long term”. The bank doesn’t appear overly worried, however, noting that very important persons have upped their spending so far this year:
Our ongoing conversations with luxury malls in China suggest continued momentum – luxury demand from domestic travel has returned (as a reminder, up to 50% of luxury sales in Beijing and Shanghai is contributed by non-local customers), the average spending ticket has continued to rise, and the very high end (e.g. VIPs) has increased its luxury spend since the beginning of 2023.
Morningstar, meanwhile, thinks luxury may be overbought:
We found that equity prices had significant predictive power of luxury sales prior to COVID-19 (59% lagged correlation of luxury industry growth on S&P 500 returns from 2007-19), while the Chinese property price downturn in 2015 preceded stagnation in global luxury sales in 2016 (real estate accounts for 60%-70% of savings among Chinese nationals). Hence, we believe the recent weakening of equity prices and real estate prices in China could lead to a slowdown in luxury demand going forward
Why do people buy this stuff in the first place? FT columnist Janan Ganesh suggests an “ingrained deference to Europe on certain questions of taste” partially explains wealthy Asians’ seemingly insatiable appetite for Givenchy/LVMH-labelled “tat”. Materialists at Morgan Stanley blame status anxiety in particular:
The bank says “wealth, female empowerment, technology/social media [and] demography” — as well as “social stratification” — are among the reasons behind China’s growing demand for ostentatious goods.
Desmond Shum, author of Red Roulette, a memoir on working in Chinese finance, offered a similar diagnosis in early June, fresh from a call with an unidentified “leading authority” on all things glitzy and glam:
God is dead, in other words, but Gucci is forever. Or is it? Reuters ran the following this week:
Staff at a large Chinese state-owned mutual fund and a midsized bank have instructed staff not to show off high-end lifestyles, said employees at the firms, declining to be named due to the sensitivity of the matter.
The mutual fund has also asked staff to refrain from posting pictures of expensive meals, clothes or bags on social media, said an employee, to avoid attracting regulatory glare or public criticism.
The midsized bank’s employees have been asked to not wear luxury brands or carry luxury bags at workplace, said a person at the lender, adding staff have also been told they can’t stay at five-star hotels when travelling for work.
Senior executives at a state-owned insurance company have also been told to not wear expensive clothes to work, said another person with knowledge of the matter
China’s richest 0.001 per cent own a greater share of national wealth than the poorest half, according to the World Inequality Lab. Comparing Gini coefficients, China is more unequal than the US. Actually addressing material inequalities and their underlying causes would be a huge job, even for the CCP. But a superficial ban on superficiality sends all the right signals and requires a lot less work.
Following crackdowns on the country’s technology and private education sectors, is it completely inconceivable that Beijing’s “common prosperity” drive one day ensnares Europe’s luxury brands?
Halfords profits fall sharply as weaker economy hits consumer confidence
UK retailer says cycling division suffered ‘significant’ declines after end of pandemic sales boom
Profits at bike and car parts retailer Halfords fell sharply last year, as a boom experienced by the company during the Covid-19 pandemic ended amid rising inflation and a weakening UK economy.
In full-year results on Wednesday, Halfords said underlying profit before tax for the year to March was £51.5mn, compared with £89.8mn in the previous year. Citing various “market headwinds” that had affected the results, it estimated cost inflation was £68mn.
Group revenues were $1.59bn, a 15.3 per cent increase on the previous financial year and 39.5 per cent higher than 2020.
Halfords also said it expected profit growth this year, backing analyst consensus forecasts of £53.3mn of underlying profits before tax. Shares rose more than 5 per cent in early trading.
Graham Stapleton, chief executive, said he was “confident” about the future despite the uncertain economic backdrop.
“In a very challenging year, our focus has been on supporting both customers and colleagues through the cost of living crisis,” he said. “This has led to an outstanding sales performance and significant market share gains.”
Halfords said, however, that its consumer tyres and cycling divisions had seen “significant” volume declines, of 14 and 24 per cent respectively compared with the same period in 2020. But it noted its market share had increased in all categories.
Businesses have had to navigate major changes in shopping habits and the economic backdrop since the start of the pandemic when there was a series of lockdowns and inflation was ultra-low.
Halfords said British Cycling estimated the 2023 financial year ended with sales volumes almost a quarter lower than pre-Covid levels, though motoring had fared much better.
“Consumer confidence has been very volatile, with the impacts of increasing interest rates, energy bills and general inflation severely impacting customers’ willingness to spend,” said Halfords. The company said cycling sales also fell after Liz Truss’s “mini” Budget in September last year.
Earlier this year, Halfords warned on profits, blaming ongoing staff shortages and weaker demand for higher-price items.
>>> Up
* AJ Bell Raised to Equal-Weight at Barclays; PT 340 pence
* BB Biotech Raised to Buy at Equita
* Clas Ohlson Raised to Buy at SEB Equities; PT 100 kronor
* Entain Raised to Outperform at BNPP Exane; PT 1,500 pence (+)
* Grainger Raised to Overweight at Barclays; PT 270 pence
* Halfords Raised to Buy at Peel Hunt; PT 275 pence (+)
* Husqvarna Raised to Hold at DNB Markets; PT 94 kronor
* Inficon Raised to Market Perform at ZKB
* Informa Raised to Buy at AlphaValue/Baader
* Informa Raised to Buy at AlphaValue/Baader
* Mondi Raised to Neutral at Credit Suisse; PT 1,395 pence
* MTU Aero Raised to Hold at Hauck & Aufhaeuser; PT 219 euros (+)
* Petrobras ADRs Raised to Buy at Goldman
* Rockwool Raised to Hold at Nordea
* St James's Place Raised to Overweight at Barclays
* Vestas Raised to Hold at Fearnley; PT 175 kroner (+)
>>> Down
>>> Down
* Atea Cut to Sell at Arctic Securities; PT 140 kroner
* Kojamo Cut to Underweight at Barclays; PT 9 euros
* Lanxess Cut to Hold at HSBC; PT 30 euros
* Lanxess Cut to Hold at Jefferies; PT 28 euros
* Lanxess Cut to Hold at Stifel; PT 33 euros
* Lloyds Cut to Neutral at BNPP Exane; PT 52 pence
* Lookers Cut to Hold at Liberum; PT 120 pence (+)
* Metro Bank Holdings Cut to Underperform at BNPP Exane
* National Bank of Greece Cut to Hold at Deutsche Bank
* NatWest Cut to Underperform at BNPP Exane; PT 280 pence
* Netcompany Cut to Hold at ABG; PT 290 kroner
* Netcompany Cut to Hold at ABG; PT 290 kroner
* Palfinger Cut to Hold at Erste Group; PT 30.50 euros
* Piraeus Bank Cut to Hold at Deutsche Bank; PT 3 euros
* Piraeus Bank Cut to Hold at Deutsche Bank; PT 3 euros
* Rathbones Group Cut to Underweight at Barclays; PT 1,950 pence
* Tesla Cut to Equal-Weight at Barclays; PT $260
>>> Initiation
>>> Initiation
* Ahold Delhaize Reinstated Buy at Kepler Cheuvreux; PT 34 euros
* Carrefour Reinstated Buy at Kepler Cheuvreux; PT 22.40 euros
* Evolution Rated New Neutral at JPMorgan; PT 1,370 kronor
* Mensch und Maschine Rated New Buy at Berenberg; PT 72 euros
* Otovo Rated New Buy at Pareto Securities; PT 16 kroner (+)
* Oxford Biomedica Rated New Neutral at JPMorgan; PT 495 pence
* Pandora Reinstated Hold at Sydbank
* Pandora Reinstated Hold at Sydbank
* W5 Solutions Rated New Buy at Pareto Securities; PT 100 kronor (+)
* Xvivo Perfusion Rated New Buy at SEB Equities; PT 410 kronor
>>> Call
>>> Call
* BAE Has Better Uses for Capital Other Than Ball Unit, Citi Says
* Bernstein’s McCarthy Says Growth Stocks’ Price Isn’t Extreme (+)
* Citi Sees Trends Softening For Payments Firms Wise and Adyen
* GAM Reports 1Q Loss; Finances Remain Very Difficult: Vontobel (+)
* Goldman Sees Five Reasons for Bulls to Hedge S&P 500 Rally
* Goldman Sees Five Reasons for Bulls to Hedge S&P 500 Rally
* Lanxess Gets Downgrades at Jefferies, HSBC Following Warning
* Mensch und Maschine New Buy at Berenberg on Autodesk Partnership
* Mondi Upgraded at Credit Suisse as Earnings Seen Bottoming Out
* Universal Music Seen to Benefit From Pricier Spotify Plan: DB (+)
- Argenx (1AE TH) +2.3%
- Argenx Wins FDA Approval of Vyvgart Hytrulo Injection (1)
- Adidas (ADS TH) +1.9%
- Nibe (NJB TH) +1.1%
- BP (BPE5 TH) +0.6%
- Oil Fair Value Above $80 Even as Economy Weighs on Sentiment
- Stellantis (8TI TH) +0.6%
- Watch Auto Stocks After Europe Car Sales Rose 18.2% in May
- Lufthansa (LHA TH) +0.6%
- Lufthansa Sells Payment Specialist AirPlus to SEB for €450M
- Novo Nordisk (NOVC TH) +0.5%
- EQT Sells €1 Billion Industrial Tech Firm Ellab to Novo Holdings
- Lanxess (LXS TH) -0.5%
- Lanxess Gets Downgrades at Jefferies, HSBC Following Warning
- Siemens Energy (ENR TH) -0.5%
- Evotec SE (EVT TH) -0.7%
- TUI (TUI1 TH) -0.7%
- Kering (PPX TH) -0.9%
- China’s Luxury Goods Upside Prevails Despite Economic Slowdown
- Nel (D7G TH) -1%
- Deutsche Post (DPW TH) -1.7%
- Watch Mail-Delivery Stocks After FedEx Outlook Misses Estimates
- Mowi (PND TH) -1.8%
- Aedifica (AOO TH) -9.1%
- Aedifica Public Offering of Up to ~7.3M New Shares at €52/Share
DAX:
- Adidas (ADS TH) +1.9%
- Covestro (1COV TH) +0.6%
- Mideast Buyers in $20 Billion Deal Rush for Plastics, Metals
- Daimler Truck (DTG TH) +0.5%
- Siemens Energy (ENR TH) -0.5%
- Deutsche Post (DPW TH) -1.5%
- Watch Mail-Delivery Stocks After FedEx Outlook Misses Estimates
MDAX:
- CTS Eventim (EVD TH) +0.8%
- Lufthansa (LHA TH) +0.4%
- Lufthansa Sells Payment Specialist AirPlus to SEB for €450M
- Lanxess (LXS TH) -0.3%
- Lanxess Gets Downgrades at Jefferies, HSBC Following Warning
- Evotec SE (EVT TH) -0.7%
SDAX:
- Aroundtown (AT1 TH) +1.2%
- Deutz (DEZ TH) -0.5%
- Suess MicroTec (SMHN TH) -0.8%
- SGL (SGL TH) -6.4%
- SGL Carbon SE to Issue About €120M Convertible Bonds Due 2028