Shares in home shopping firm Studio Retail (STU) jumped 12% to 294p on Tuesday after the group agreed to a request from main shareholder Frasers (FRAS) that it launch a strategic review and consider putting out the for sale sign.
With second biggest shareholder Schroders (SDR) backing the idea, Studio Retail is now ‘in play’, though it is unclear whether Frasers, controlled by maverick billionaire Mike Ashley and mulling a potential rescue of Debenhams, will be interested in making a bid.
WHY STUDIO’S UP FOR SALE
In October, 37%-shareholder Frasers wrote to Studio Retail, arguing that the company is ‘misunderstood by the market and as a consequence, significantly undervalued’.
The Sports Direct-to-House of Fraser-owner also stated that ‘although this may be fixable over the long-term, the group should conduct a strategic review’.
In light of this letter, talks with Schroders, an upcoming chief executive succession and the recent abandoned sale of Studio Retail’s Education division, the board has now determined ‘that it is an appropriate point to undertake a comprehensive review of the strategic options open to it in order to maximise value for shareholders’.
These options include a sale ‘which will be conducted under the framework of a “formal sale process” in accordance with the Takeover Code’, said Studio Retail.
CHRISTMAS ON CREDIT
Besides putting itself under the hammer, Studio Retail, which Shares highlighted as a potential Christmas winner here, also reported encouraging first half results and strong third quarter trading at its primary business, Studio.
A digital retailer with a value and credit proposition which appeals to cash-strapped consumers, Studio has thrived during the coronavirus lockdowns.
The group’s adjusted pre-tax profit powered 52% higher to £17.7 million on sales up 17.2% to £268 million in the half ended 25 September, driven by the Studio business.
‘Our growing customer base, coupled with strong processes and systems has meant we have been well-positioned to respond to record levels of activity during peak trading in recent weeks,’ said the company, while also reporting ‘a materially stronger profit performance to date’ in the third quarter compared with last year.
‘Product revenue in Q3 to the end of November is 32% ahead of prior year,’ explained Studio Retail, with ‘gross profit margins from product sales up 450 basis points. While we are yet to see any material adverse impact of the pandemic on customer repayments, we remain watchful of the volatile consumer environment.
‘Nonetheless, the strength of our customer proposition, further investment in our digital capabilities, and the strong growth in the credit customer base - where there is a higher degree of loyalty - underpins our confidence in the sustainability of the medium-term growth prospects of the business.’
