What could Mike Ashley’s upmarket efforts mean for the Frasers Group share price?

Changing its name and investing in upmarket brands, will this rebranding work for Frasers Group?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Not that long ago, if I were to say the names Sports Direct International and Mulberry, it would conjure up very different images.

On the one hand, you had a mainly bargain basement-style sports and clothing retailer, known for cheap prices and distinctive red and blue branding. On the other, a high-end designer company known for its handbags. 

They are almost diametrically opposed firms in most people’s eyes, so it may have been a shock to hear that Frasers Group (LSE: FRAS), as Sports Direct is now known, is tying itself up with Mulberry much more closely via a stake buy.

Moving upmarket

This shift towards a more upmarket brand is no longer, of course, at least for those of us following the Sports Direct/Frasers story, a surprise. Indeed, the renaming of the parent company to Frasers signalled a move to diversify away from cheap sporting goods (though they of course still make up the foundation of its business). It took on a derivative of the House of Fraser name, the takeover of which caused major problems for it given the weak state of the business.

So what is behind the Mulberry link-up? A statement from the company said: “A key strategic priority for Frasers is the elevation of our retail proposition and building stronger relationships with premium third-party brands,” Frasers has bought a 12.5% stake in Mulberry, hinting that it may undertake more “strategic investments” in the future.

Unfortunately for Frasers, a number of strategic investments it has made so far have not necessarily worked out well, most notably Debenhams (in which it lost its entire stake) and Goals Soccer Centres. That said, Mulberry is a significant supplier of House of Fraser, with concessions in its stores, and so Frasers’ investment is perhaps more in line with business-as-usual than it may first appear.

And its share price seems to have benefited from its move upmarket of late. It closed at 464.60p on Friday, up from 272.60p a year ago. But can it continue to rise from here? If its upmarket move works, it should do. But there have been some other issues affecting the share price too. 

Bye, bye tax man

January did see some good news relating to one of them, with the Belgian tax authority concluding most of its investigation into a tax dispute that had delayed Sports Direct’s full-year results last July. The results of the investigation seem to suggest that the correct amount of tax had been paid, but “the documentation provided and process followed were incorrect”.

This certainly removes a cloud of risk that has been overshadowing Frasers for some time, as the potential tax liability the firm may have suffered amounted to about three times its annual profits. That said, there are still questions being raised about the company’s financial audits.

The Financial Reporting Council, the UK audit regulator, has in fact taken the company to court to gain access to documentation it had provided its then accountant Grant Thornton, with specific relevance to its 2016 audit of the business.

I think Frasers’ moves towards strategic investments may work out for the firm, and the Belgian tax case news is all good. But I still think there is a lot of risk surrounding the company so I still see it as too risky for now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

The Motley Fool UK has no position in any of the shares mentioned. Karl has no position in any of the shares mentioned. 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.

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »