This is an update to the Frasers Group deep dive published last year. It is available exclusively to premium subscribers of Wonder Stocks. The original note can be found here and is available for all to read for free.
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Key Takeaways
Core Compounding Continues: Frasers has maintained its long-term record of expanding net asset value, with its book value compounding rate ticking up to 18.0% over an 18-year horizon. However, beneath the surface, the performance of the domestic shops requires a closer look.
Management Performance Scorecard: Since our original deep dive, management’s capital allocation has remained highly effective, though domestic trading faces cyclical headwinds.
Earnings Trajectory Adjusted: One important change since our original deep dive is how Frasers now accounts for its largest investments. Stripping out these adjustments reveals that reported profits flatter the underlying retail business.
Ownership Concentration Rises: A major personal share pledge by founder Mike Ashley enhances his financial flexibility. While it has no immediate operational impact on the company, it raises interesting long-term questions regarding the future size of the public free float.
Valuation Disconnect Remains: The market continues to price Frasers at a deep discount to historical averages and high-street peers. This gap offers a wide margin of safety for patient investors.
