Mike Ashley-controlled Frasers (FRAS) has raised its stake in bombed-out Boohoo (BOO:AIM) above 15% for the first time as the retail conglomerate continues to build on its ‘strategic investment’ in the embattled online fashion seller.

Sports Direct, House of Fraser and Flannels-owner Frasers has upped its stake from 13.4% to 15.1%, extending its position as Boohoo’s biggest shareholder.

On 3 October, Frasers pounced on share price weakness to increase its ownership position from 10.4% to 13.4%, thereby leapfrogging Boohoo co-founder and executive chairman Mahmud Kamani as the biggest name on the register.

IS BOOHOO REALLY A BARGAIN?

2023 has been another frenetic year of stake-building for Frasers, which has snapped up stakes in electricals retailers Currys (CURY) and AO World (AO.), and increased its stake in Boohoo’s fierce online-only fast-fashion rival ASOS (ASC) to almost 20%, in a bid to expand its web of commercial relationships.

Frasers, which also has shareholdings in the likes of N Brown (BWNG:AIM), Mulberry (MUL:AIM) and Hugo Boss (BOSS:ETR), has previously highlighted ‘potential synergies’ and scope for collaborations between Boohoo and two of its brands, I Saw It First and Missguided.

Evidently, billionaire retail tycoon Ashley and son-in-law Michael Murray, who occupies the chief executive hot seat at Frasers, spy a bargain at Boohoo, whose shares have been languishing near all-time lows below the 30p level since 3 October, when the online fast-fashion retailer disappointed the market by downgrading its full-year 2024 sales and profit forecasts.

With cash-strapped fashionistas continuing to feel the cost-of-living pinch Boohoo, which owns the namesake brand as well as PrettyLittleThing, Debenhams and Dorothy Perkins, said it now expects year-to-February 2024 revenues to decline by 12% to 17%, having previously called for a flat to 5% decline.

The retailer also warned adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) would be between £58 million to £70 million, below the previously guided £69 million to £78 million range.

Downbeat results for the half to August confirmed continued weak trading, with revenues falling by a worse-than-expected 17% to £729.1 million, including a 10% decline in core brands such as boohoo, boohooMAN, PrettyLittleThing, Karen Millen and Debenhams.

THE EXPERT’S VIEW

Russ Mould, investment director at AJ Bell, commented: ‘Boohoo has been struggling with cost pressures and weak demand, which have squeezed its margins and left the business loss-making.

‘Frasers loves a bargain and clearly sees an opportunity to have influence over Boohoo’s strategy, possibly as another avenue to sell its range of athleisure brands.’

Mould continued: ‘But equally, Frasers might be viewing this simply as a way to make a quick buck – a chance to buy shares on the cheap and then flip them should see the online retailer be successful in its turnaround efforts.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Ian Conway) own shares in AJ Bell.

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