This article exists as additional information to an article on Frasers Group called Invest in a Maverick. It is not intended to be read without reference to the original article.
Sportswear to Savile Row
In the formative years of his enterprise, Mike Ashley, trading as Mike’s Sports, aggressively undercut rivals to gain a foothold in the market. Following a rebrand to Sports Direct and a successful public listing, Ashley’s astute deal-making fuelled rapid expansion. While some ventures, like Evans Cycles, thrived, others, including investments in Debenhams, met with disappointment.
Frasers Group, as it is now known, boasts a diverse portfolio encompassing budget sportswear through Sports Direct, luxury fashion via Flannels, and department stores under the House of Fraser banner. The company has also ventured into the fitness sector with Everlast Fitness Clubs, alongside maintaining ownership of various brands.
A mid-2010s exposé laid bare poor working conditions at Sports Direct’s Shirebrook warehouse, triggering widespread public outrage and precipitating the resignation of the then-CEO. Compounding these challenges, related-party transactions involving Ashley’s brother’s logistics firm and his son-in-law’s property ventures have provoked shareholder discontent. Tensions with the City, driven by disputes over executive remuneration and boardroom governance, have further strained relations. Ongoing environmental, social, and governance (ESG) deficiencies continue to repel certain investors, while Ashley’s confrontational approach, characterised by public disputes with MPs and journalists, only heightens scrutiny of his leadership.
Frasers Group’s financial journey has been marked by turbulence. While revenue has followed a broadly upward trajectory, profits remain susceptible to fluctuations. Despite carrying debt, the company generates sufficient cash flow to fund share buybacks and acquisitions. Eschewing dividend payments, Ashley channels profits back into growth, pursuing a strategy of acquiring distressed assets, revitalising them, and scaling operations. Initiatives such as expanding Flannels and launching fitness clubs target higher-margin markets, even as short-term earnings exhibit inconsistency.
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Elevation
The company has strategically invested in opening new flagship stores designed to deliver a premium retail experience, enhancing its market presence. A notable acquisition, the £52m purchase of luxury retailer Matches in December 2023, has bolstered its position in high-end fashion. Partnerships with premium sportswear brands such as On and Columbia have further strengthened its credentials in this segment, while the acquisition of Gieves & Hawkes marks a deliberate move into luxury, bridging the gap from sportswear to Savile Row.
The ELEVATE Retail Media Network, supported by a partnership with Zitcha, plays a pivotal role in enhancing brand visibility and customer engagement through data-driven campaigns. This initiative complements the Sports Direct Membership programme, which offers loyal customers exclusive benefits, fostering deeper connections with the brand. On the international front, Frasers has pursued growth by acquiring a stake in Australia’s Accent Group and exploring further merger and acquisition opportunities to expand its global footprint. Investments in warehouse automation and digital infrastructure are streamlining operations, positioning the company for scalability and efficiency.
Fraser Plus is a cornerstone of the Elevation strategy and the group’s financial services arm. They originated from the 2022 acquisition of Studio Retail’s financial services division for £26.8m. It was a distressed asset acquired following Studio’s collapse. This provided Frasers with an FCA-regulated credit platform, forming the foundation for Frasers Plus. By October 2024, Frasers Plus had grown to 377,000 active customers, with 272,000 new users added in the first half of Full Year 2025, driving a significant portion of UK online sales. The economics of Frasers Plus rely on generating high-margin revenue through credit uptake, leveraging customer data to refine targeting strategies. The initiative has expanded through third-party partnerships, notably integrating with THG’s Ingenuity platform in July 2024 and securing a deal with Hornby plc post-period to access niche hobbyist markets. These partnerships echo Next’s strategy of extending credit to external retailers, amplifying scale and diversifying revenue streams. However, early overhead costs and the planned reduction of Studio Retail’s legacy book have constrained short-term profits, reflecting a long-term focus on scalable growth. According to Frasers Group’s Half Year 2025 Results Announcement, Frasers Plus aspires to achieve over £1bn in annual sales, £600m in credit balances, and a yield exceeding 15%, with ambitions to surpass 2 million active customers, excluding third-party partnerships. This vision positions Frasers Plus as a transformative force within the Elevation strategy, redefining Frasers’ ecosystem as a retail-finance powerhouse spanning sportswear to Savile Row.
Overall, the Elevation strategy is forging a promising trajectory, driven by flagship stores, premium brand partnerships, and innovative services like Frasers Plus. These efforts underscore Frasers’ bold pivot towards upscale markets. While integrating acquisitions like Matches and navigating the complexities of retail’s evolving landscape present challenges, early successes from elevated stores and loyalty programmes indicate steady progress towards the group’s ambitious goals.
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Credit Where it’s Due
As a rather arrogant 30-year-old retail analyst in the City many years ago, I replied thus to the question of why don’t I cover Sports Direct?
“Because in twenty years’ time, Mike Ashley will either be the richest man in the UK or in prison”
What I was trying to convey was that, he had clearly been incredibly successful however as the business seemed mired in controversy, one of these days something bad might happen. Therefore, my blunt prediction was that the outcome for shareholders would have followed either of those two scenarios. It’s roughly thirteen years since I said that, I no longer believe that there is any possibility he will be in prison, but the richest man in the UK remains a possibility. A striking contrast persists between perceptions of the business and its founder and the underlying reality. Over the past twelve years, Frasers Group has significantly improved, yet public and investor perceptions appear to have deteriorated.
Several factors contribute to investors’ reluctance to engage with Frasers such as unconventional asset allocation. However, snobbery also plays a role. I once heard the private remarks of a (well spoken) fund manager’s reason for not investing that were so crass, that Wonder Stocks deems them too offensive to repeat. However, exceptional fund managers who hold significant weightings in Frasers share traits with Ashley, notably their maverick tendencies. Like Ashley, these investors have built enviable track records despite being overlooked by the mainstream. In today’s investment landscape, where cost pressures, fee constraints, and the rise of AI threaten professional investors, mavericks are increasingly shunned in favour of safe, mediocre choices. Yet, it is in these mavericks that true excellence often resides.
Frasers’ approach challenges City of London conventions, which prioritise short-term consistency over long-term value. This philosophy echoes Jeff Bezos’s 1997 stance of prioritising future cash flows over polished GAAP accounting.
“When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we'll take the cash flows.”
Since its listing, Frasers’ profits have followed a volatile but upward trajectory, with growth and cash generation now multiples of their earlier levels. The company pursues long-term value, often at the expense of short-term losses, as evidenced by its acquisitions and rescues of struggling businesses such as House of Fraser, Gieves & Hawkes, and Matches. Its financial strength and operational flexibility enable it to capitalise on bargains, exemplified by the £18m purchase of the Coventry Arena in 2022, a venue originally built and expanded for £113m. This acquisition followed the bankruptcy of Wasps Rugby Club and was facilitated by Frasers’ agile business model, which supports rapid decision-making.
Mike Ashley, who retains majority ownership, and his son-in-law (Michael Murray), both exhibit deep passion for the business. However, the analyst community, largely composed of individuals who have never built a business, let alone one employing over 30,000 people, often dismisses these achievements with flippant critiques. This has occasionally led to strained relations and combative communications from Frasers’ management. In its early days as Sports Direct, the company faced tensions with major suppliers like Nike, who were sceptical of its no-frills model and restricted access to premium products. By 2025, however, Frasers has transformed its sports retail offering, forging strategic partnerships with brands such as Nike, Adidas, and The North Face. Nike now ranks Frasers among its top three global retail partners, a testament to the group’s evolution from pariah to valued partner.
The reality of Frasers Group’s strengths is compelling. The company has increased its book value per share by 16% annually for 18 years, achieving a total growth of 1,350%. Its managers are dedicated to maximising long-term value, evidenced by the buyback and cancellation of one in every six shares over the past three years, capitalising on the undervaluation of its stock. Frasers invests heavily in technology, automating warehouses and integrating systems with an efficiency comparable to Next, its closest UK peer in technological and operational excellence. The company strategically maximises asset write-downs and expenses investments to minimise tax liabilities, enhancing long-term value. Most notably, the UK sports division of Frasers stands as amongst the most profitable major retailers in the UK, challenging even Next in margins. While other parts of the business generate lower returns, the high profitability of the sports segment underscores the group’s operational excellence.
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Why It’s Cheap
Frasers Group’s acquisitive strategy has significantly shaped its financial profile, often masking the underlying earnings potential because of substantial integration costs, such as those incurred from eliminating duplicate systems. Looking ahead, the company has cautioned that rising employment costs are expected to affect its finances next year. These increases are being driven by higher national insurance contributions and a rise in the minimum wage. The company estimates that this will add approximately £50 million to operating expenses, though measures are in place to mitigate the impact.. Over the longer term, Frasers possesses the capacity and capability to enhance margins as duplicate costs are streamlined and acquired businesses become fully integrated into the Frasers platform.
A detailed breakdown of the estimated underlying EBIT, totalling approximately £668m, reveals the strength across its divisions.
The UK Sports Retail segment is projected to generate around £3b in revenue with a 12.5% operating profit margin, contributing £375m to EBIT.
Premium Retail is expected to deliver £1.2b in revenue with a 9% margin, yielding £108m in EBIT.
International Retail, with £1.3b in revenue and a prudent 10% margin assumption, positioned between UK Sports and Premium Retail, adds £130m to EBIT.
The Property Division’s profitability is not interpolated here; instead, its value is accounted for through balance sheet adjustments.
Financial Services, through Frasers Plus, currently generates revenue in the range of £100m to £110m, achieving a 50% margin and contributing approximately £55m to EBIT. This estimated £668m underlying EBIT is roughly 15% higher than current-year guidance, with the difference attributed to one-off costs tied to acquisition integration.
Balance sheet adjustments further inform the enterprise value. Strategic investments, including stakes in listed and non-listed businesses, are valued at approximately £1b, with a breakdown provided in the appendix of the main article. Additionally, property investments worth around £500m are not reflected in the operating results outlined above. Net debt, including lease liabilities total approximately £1b.
In a valuation context, Frasers’ trading multiples present a compelling case when compared to peers. Marks & Spencer, despite a more chequered history, trades at over 10x EV/EBIT, while Next, the standout UK retail stock, commands a 15x multiple. A shift in Frasers’s valuation to align with Marks & Spencer’s would result in a 175% increase in enterprise value and a 147% rise in market capitalisation. Management recognises this value proposition, leveraging a portion of its free cash flow to repurchase and cancel approximately 5% of equity annually, underscoring confidence in the company’s undervaluation and long-term potential.
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Management & Strategy: From Ashley to Murray
From founding the company in 1982, Mike Ashley served as CEO until 2008, when Dave Forsey assumed the role, guiding Sports Direct through a period of significant expansion. Forsey’s tenure ended in 2016 when he resigned amid controversies, notably intense scrutiny over working conditions, prompting Ashley to resume the CEO position to navigate Frasers through a turbulent phase. This period was marked by major acquisitions, such as House of Fraser, and the retail disruptions caused by the pandemic. In 2021, Ashley transitioned to an executive director role while retaining his position as majority shareholder, allowing him to maintain strategic influence through board decisions and consultancy as he prepared to hand over operational leadership to a successor.
Michael Murray, appointed as CEO, brought experience from his prior role as 'head of elevation', where he spearheaded store modernisations and forged key brand partnerships. His appointment, however, sparked accusations of nepotism, with critics questioning whether his marriage to Ashley’s daughter, Anna, overshadowed his qualifications, particularly given his limited boardroom experience. Murray maintains that he holds decision-making authority, yet Ashley’s substantial shareholding and ongoing consultancy role continue to fuel perceptions of his enduring influence, shaping Frasers as it embarks on its next chapter.
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The Investment Case: Value + Growth = Upside
Frasers Group’s value proposition is underpinned by strategic initiatives that enhance its financial and operational flexibility. The company has actively pursued share buybacks, repurchasing and cancelling one in every six shares outstanding three years ago, capitalising on the undervaluation of its stock. Asset optionality further bolsters this proposition, exemplified by the acquisition of the Coventry Arena, originally built in 2005 and expanded in 2010 at a total cost of £113million. Previously owned by Wasps Rugby Club, which declared bankruptcy in 2022, the arena was acquired by Frasers for approximately £18million, a fraction of both its initial and replacement costs. Beyond this, the balance sheet reflects approximately £1billion in strategic investments, including stakes in listed and non-listed businesses, alongside roughly £500million in property investments, further enhancing the group’s asset portfolio.
The growth proposition is equally compelling, driven by consistent book-value compounding and the potential for margin expansion. Since its listing in 2007, Frasers has increased its book value per share by approximately 16% annually, resulting in a remarkable 1,350% growth over 18 years. However, £800m has been written off since the onset of COVID as the company repositions for future growth. This trajectory remains feasible, particularly as the company reduces its share count by 5% per annum while shares remain undervalued. Longer-term, Frasers is well-positioned to expand margins by eliminating duplicate costs and more fully integrating acquired businesses into its platform. The high margins achieved in the UK sports business, as detailed under the ‘Credit Where It’s Due’ section, underscore the group’s operational excellence and signal potential for other divisions to follow suit.
The combined returns potential is supported by detailed valuation scenarios outlined in the main article, which argues that Frasers is a superior business to Marks & Spencer, suggesting that the 10.7x EV/EBIT multiple is likely conservative. A valuation midpoint between Marks & Spencer and Next, at 12.9x EV/EBIT, is undemanding yet realistic. Applying Marks & Spencer’s 10.7x EV/EBIT multiple with a 15% growth rate yields a 900% total return, equating to a 26% compound annual growth rate
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Risks & Mitigants
Under Mike Ashley’s leadership, Frasers Group has pursued an aggressive share consolidation strategy, which presents a significant risk that shareholders may not fully benefit from the company’s potential. Over the past three years, 15% of outstanding shares have been repurchased and cancelled, increasing Ashley’s ownership to 73% as of October 2024. At this rate, Ashley could potentially own all equity well before a decade elapses, consolidating control and limiting shareholder participation in future gains. This is particularly important as his holding approaches 75% and crucial should it breach 90%.
In the UK, under the Companies Act 2006, reaching 75% ownership of a public company gives a shareholder the power to pass special resolutions, enabling actions like changing the company's articles or approving a delisting. At 90% ownership, if achieved through a formal takeover offer, the majority shareholder can trigger a squeeze-out process to compulsorily acquire the remaining shares, effectively taking the company private. Minority shareholders also gain a reciprocal sell-out right. UK Listing Rules (specifically LR 5.2.5) require a 75% vote to approve a delisting of a premium-listed company, but once 90% is reached and a squeeze-out is completed, delisting can occur without further shareholder consent.
The company’s acquisitive strategy brings additional challenges. When a business grows by buying others, there’s always a risk that the new parts won’t fit well together. This risk is even higher when the acquisitions involve distressed companies, i.e., those bought out of administration or bankruptcy. These types of deals can be complex and difficult to integrate, and they don’t always deliver the expected results. Frasers prioritises long-term value creation over short-term profitability, a strategy evident in its rescue of distressed businesses such as House of Fraser, Gieves & Hawkes, and Matches. These examples highlight why significant integration costs are incurred, forming an integral part of the company’s value creation strategy. The gap between guided adjusted profit before tax (APBT) and underlying EBIT is largely attributable to these one-off costs associated with integrating acquisitions, reflecting the trade-off between immediate losses and the pursuit of sustainable, long-term growth.
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Conclusion
Frasers Group presents a compelling contrarian investment opportunity, uniquely undervalued despite its clear delivery of strong performance. The company’s long-term success and quality are evidenced by its remarkable track record, having increased book value per share by 16% annually for 18 years, resulting in a total growth of 1,350%. This achievement is underpinned by a management team deeply committed to maximising long-term value. Operationally, Frasers demonstrates significant strength, investing heavily in technology to achieve efficiencies comparable to Next, its closest peer in terms of technological and operational excellence in the UK retail sector. The company’s financial strategy further enhances its value, as it strategically maximises write-downs and expenses investments to minimise tax liabilities, thereby bolstering long-term value creation. Far from being a challenging partner, Frasers has forged strategic alliances with many of the world’s leading brands, transforming its reputation and strengthening its market position. Notably, the UK sports division stands as amongst the most profitable major retailer in the UK, surpassing even Next in profitability. Frasers is cheap – very cheap.
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Disclaimer: the author of this Wonder Stocks article is Jamie Ward. At time of publishing he owns shares in Frasers Group