Frasers Group (LSE: FRAS) shares rose 2.1% to 795p on 27 July after the retail giant reported record earnings. Amid a challenging economic backdrop for most retailers, the owner of Flannels and Sports Direct seems to be defying the general doom and gloom.
The share price reflects this progress, rising 12% year to date. Over five years, we’re looking at an even more impressive 94% return for shareholders.
So, is now the time to be snapping up Frasers stock? Let’s take a look.
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Surging profits
For the 53-week period to the end of April, the group’s revenue rose almost 16% year on year to £5.57bn. This was driven by strong trading from the core Sports Direct business, which benefited from its deepened partnership with Nike.
Meanwhile, pre-tax profit surged to £660m from £335.6m, a 97% increase. Reported basic earnings per share were 106p, a doubling from 52.9p the year prior.
Looking forward, management said it expects “further strong profit’ in FY24.
Given the ongoing cost-of-living crisis, I find these numbers extremely impressive.
Building stakes
In recent months, the company has been building strategic investments in well-known retailers.
In June, it bought a 5% stake in fast fashion company boohoo, a position that it has just widened to 6.7%. Frasers said boohoo was an “attractive proposition” due to its “laser focus on young female consumers”.
The group also recently widened its holdings in boohoo rival ASOS to 15%. And it has stakes in German fashion house Hugo Boss, as well as British clothing retailer N Brown and luxury leather goods brand Mulberry.
In July, the firm also upped its position in electrical goods retailer Currys from 10.4% to 11.1%. And Frasers now owns 21% of AO World, the UK’s biggest seller of large domestic appliances. It snapped up 109.4m shares at 68p each.
Many of these shares, particularly Currys and boohoo, are trading at quite distressed levels. An investment in Frasers stock would give me exposure to these firms without taking on the risk of buying their shares individually. I find that attractive.
Ownership
One issue I think is worth highlighting is that Sports Direct founder and former CEO Mike Ashley still owns around 72% of Frasers’ equity. While there’s no indication that he’s going to start offloading shares, it could create volatility if he chose to do so at some point.
Plus, Frasers chief executive Michael Murray is Ashley’s son-in-law. The large stake-building in other retailers was a hallmark of his predecessor, so there seems a fair degree of continuity here.
That’s a plus point for me, and I do like to see high insider ownership when investing in companies.
Is now the time to buy?
The stock is very cheap, trading on an earnings multiple of 9. There’s strong momentum in the business, including international expansion in Asia. And those multiple strategic stakes could unlock some interesting partnership opportunities, fuelling further growth.
One drawback for me here is that the company doesn’t pay a dividend. But not doing so at least preserves its financial flexibility, allowing it to continue its stake-building and to pursue acquisitions.
Putting all this together, I think the shares appear attractive. I’d be adding them to my portfolio today if I had spare cash.
