Less than a week ago we noted that Mike Ashley is known to be a ‘goer on’ especially when building up a meaningful stake in the equity of ailing companies.
We have seen him do that so many times before and often with success.
So, after last Thursday’s Trading Statement from ASOS (LON:ASC), which showed that the £441m capitalised online fast fashion retailing group is now returning to profitability, the market is wondering what are his ongoing intentions?
Already a useful turn?
Certainly, the purchases that he has made in the last few weeks must already stand Frasers in with a fair turn – but is it enough yet?
Frasers Group (LON:FRAS), which is capitalised at over £3.2bn, recently took out a strategic 18.9% stake in the AO World (LON:AO.) white goods retailer, at a cost of £75m.
His 10.59% stake in ASOS, some 12.62m shares, is enough to be a bit of a blocker should a potential bidder come onto the scene.
We already know that the Turkish online group Trendyol had made an approach last December, but which was rebuffed despite it said to be at over £10 a share – so is it likely to come back now that the shares have been down to 320p and are edging higher again?
Does last week’s statement change things?
After last Thursday’s Trading Statement from ASOS, covering the three months to the end of May and showing that it has returned to profitability after a host of reorganisational changes, including focussing upon profit as opposed to customer growth.
In fact, sales were 14% lower and customer numbers down over 800,000 in the trading period, whilst a mass of unwanted stock had been cleared off the ASOS warehouse shelves, together with the ceasing of free delivery of its orders in some countries.
Some £200m of cost savings have been implemented, with another £100m due to be concluded this year.
Has the corner been turned?
Are its decks clear enough for a predator to pounce?
Analyst Anubhav Malhotra at Liberum Capital considers that the group is making slow and steady progress but ‘execution risks’ are still high.
After the ‘2023 year of disruption’ he views it as possible that the group has already laid the platform for cash generation and profit growth in the full-year 2024.
Liberum has a Target Price of 470p on the shares.
At Hargreaves Lansdown their analyst Aarin Chiekrie noted that the group was prioritising profitability over the group’s growth.
Investors should expect a bumpy ride as it progresses toward its adjusted EBIT guidance of £40-£60m in the second half year.
Conclusion – an exciting ride ahead
The shares touched 407.84p on Friday morning, before closing the week at 370.40p, which was a useful uplift on the 326p level last Tuesday when we wondered whether the shares could prove to be the online retail bargain of the year.
And we still have no idea where Mike Ashley is going with his Frasers Group holding, but it could yet get to be an exciting ride for adventurous investors.