Mike Ashley reportedly reflected on decision to privatize Frasers group
Chief Executive Mike Ashley may consider privatizing Frasers Group (Fraser), according to The Telegraph.
The retail giant, which owns brands such as Sports Direct, House of Fraser, Evans Cycles, Flannels and Game, is set to report its highest annual profit on record, of up to £ 350million after a strong recovery in recent months.
The last time he hit figures like that was in 2015 with underlying profits of £ 300million.
The recent stellar performance, coupled with an intensive process of buying back its own shares in recent months, has sparked further speculation about the group’s delisting from the London Stock Exchange.
Companies typically buy stocks to reduce the number of stocks available to the public, which tends to drive up the price of stocks and is a way of getting money back to investors in addition to paying dividends.
Last week the company announced it would spend up to an additional £ 70million to buy up to 10million of its own shares by April.
Currently, founder Ashley owns 68% of the company.
Typically, once the 75 percent threshold is reached, a private property offer is imminent.
Ashley is expected to step down from her leadership role and join the board as executive director next May.
Privatizing the company would give Fraser’s new boss – Michael Murray, Mike Ashley’s son-in-law – the ability to make changes to the company without public scrutiny from investors.
The group has so far said that buying more shares will “reduce the company’s share capital.”
As Frasers faces tough headwinds such as the Omicron variant and significant property spending, recording £ 135million in write-downs in its half-year results, a City source told The Telegraph that an agreement to privatize the company FTSE 250 might not be far.
However, a takeover could prove costly for Ashley, as Fraser’s stock price has risen by more than two-thirds to over 730p so far this year.
Royal Bank of Canada equity analyst Richard Chamberlain doubts Ashley, who has been in charge since 2016, is in a rush to deregister the 39-year-old retailer.
Commenting on the buyback program, he said, “They have excess cash flow and are well below their underlying bank net debt / earnings covenant three times. This helps to make their capital structure more efficient.
Meanwhile, Jonathan Pritchard, analyst at Peel Hunt, believes any deal would be too costly right now.
He told the Telegraph: ‘Why didn’t he do it for £ 3? I don’t think that’s the game. Stocks were cheap [when they started the buyback]. They have an investment program, they generate cash, so why don’t you put your money where your mouth is? “
Net debt stood at £ 24million in recent interim results for the six-month period ended October 24, compared to £ 248million.
The company also recently entered into a new £ 930million loan with HSBC.
Shares of the company closed up 0.54% at the close of play on Friday.