- Retail powerhouse raises Boohoo stake again
- ‘Natural crossover’ between Sports Direct and Boohoo customer base
- Scope for collaborations between Boohoo and Missguided
Mike Ashley-controlled retail conglomerate Frasers (FRAS) has quietly increased its stake in Boohoo (BOO:AIM) from 7.8% to 9.1%, picking up more stock after shares in the online fast-fashion seller fell to their lowest level in eight years.
Bid up 1.75% to 33.7p on the news, dresses-to-tops purveyor Boohoo has seen its share price plunge by around 90% since April 2021 after its success story derailed, creating an opportunity for Sports Direct-owner Frasers to pounce.
Majority-owned by retail tycoon Ashley, whose son-in-law Michael Murray occupies the CEO hot seat, Frasers has previously described its Boohoo stake as consistent with its strategy of building ‘supportive’ positions in ‘attractive’ companies.
WHICH COMPANIES DOES FRASERS HAVE STAKES IN?
The House of Fraser-to-Flannels owner has been snapping up stakes in an array of retailers ranging from Boohoo’s online fast-fashion rival ASOS (ASC) to electrical retailers Currys (CURY) and AO World (AO.) in a bid to expand Frasers’ web of commercial relationships.
Earlier this month, Frasers raised its stake in ASOS from 7.4% to 19.3%. The deal-hungry retail powerhouse also has stakes in the likes of Mulberry (MUL:AIM), N Brown (BWNG:AIM) and Hugo Boss (BOSS:ETR) and has also acquired fast-fashion sites Missguided and I Saw it First, not to mention storied tailoring brand Gieves and Hawkes.
Frasers has previously indicated the stake in Boohoo could lead to collaborations between the fashion brand and Missguided.
WHY ARE BOOHOO SHARES ON SALE?
Boohoo’s depressed share price reflects the fact growth has slowed with its youthful demographic hit by the cost-of-living crisis and the company facing heightened competition and cost pressures as well as a headwind from the post-Covid return to in-store shopping.
In addition, the fast-fashion industry has come under scrutiny as more people make ethical considerations and try to avoid buying items that might be cast away after one use.
THE EXPERT’S VIEW
Russ Mould, investment director at AJ Bell, explained that Frasers has ‘developed a reputation for being a vulture – picking at the bones of businesses when they are down. While buying assets out of administration is its preferred modus operandi, it also likes buying equity stakes in companies when their shares are weak.
‘Frasers is constantly looking for ways to offer a broader range of products to its customer base and there is a natural crossover between people who shop at Sports Direct and Boohoo.
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‘Both sets of customers want casual clothes that don’t cost a lot of money, so there might be an opportunity to put Boohoo’s products into Sports Direct outlets, making it a win/win situation for both parties. Sports Direct would give shoppers another reason to visit its stores, while Boohoo gets to benefit from having a distribution channel on the high street.’
Mould continued: ‘This is all theoretical – it may simply be that Frasers believes Boohoo’s shares are too cheap and it is buying them purely as an investment, with the intention of selling them if the shares go up in value. However, what’s certain is that Frasers is watching the share price closely as it has been regularly buying more stock all summer.’
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.
