Frasers Group (LSE:FRAS) has been buying shares in other businesses at such a rate that it looks as though Mike Ashley’s trying to turn the company, of which he owns 73%, into a mini version of Warren Buffett‘s investment vehicle, Berkshire Hathaway.
But the two billionaires have other similarities.
Common traits
Both demonstrated an entrepreneurial spirit at an early age.
While still at school, Buffett sold Coca-Cola, chewing gum, and magazines door-to-door. Ashley opened a sports and ski store at the age of 18, which has now morphed into Sports Direct.
They also derive the majority of their wealth from one company.
In the case of Buffett, it’s Berkshire Hathaway, a holding company owning subsidiaries engaged in a number of diverse business activities.
For Ashley, it’s Frasers.
The latter is a leisure and fashion retailer but, just like the former, it’s recently been buying stakes in a number of different companies.
| Company | % owned | Principal activity |
| Mulberry Group | 36.9 | Handbags and leather goods retailer |
| AO World | 22.2 | Online electrical retailer |
| N Brown | 19.4 | Online ‘catagloue’ shopping |
| ASOS | 19.1 | Online fashion retailer |
| boohoo | 13.4 | Online fashion retailer |
| Currys | 12.7 | Electrical retailer |
| Hugo Boss | 3.9 | Upmarket fashion retailer |
Some are described as strategic alliances and others are branded as partnerships. In reality, they are all investments from which Frasers hopes to make a profit.
Net worth
In terms of wealth, there is more of a difference.
Buffett is said to be worth $120bn (£99bn) whereas Ashley’s fortune has been estimated by The Sunday Times to be just under £4bn.
But consider this.
From 1965 to 2022, Berkshire Hathaway’s stock price grew by an average annual rate of 19.8%. Ashley is 34 years’ younger than the American. If Frasers experienced growth like this, it would be worth £1.7trn by 2057!
Alliances and partnerships
So are the investments that the company’s making likely to generate returns of this level?
I don’t think so.
With falling sales, both ASOS and boohoo have struggled recently. They are seeking cost savings to help improve their margins and are trying to better control their stock levels. ASOS is further down the road to recovery and is profitable again. boohoo has much more to do.
On 7 September 2023, Currys reported a 4% drop in like-for-like sales for the 17 weeks to 26 August 2023, compared to the same period in 2022.
For the year ended 31 March 2023, AO World recorded a 17% fall in revenue although it did make a profit before tax of £8m (2022: loss £11m).
Comparing 2023 with 2022, Mulberry‘s revenue increased by 4%. But its earnings per share fell from 32.2p to 19.1p.
For the 13 weeks to 3 June 2023, N Brown saw a 10% drop in group revenue, compared to a year earlier.
In contrast, on 2 August 2023, Hugo Boss upgraded its earnings forecast for the current financial year. Frasers has reduced its stake in the company. However, it does have a put option over 25% of the issued share capital.
As for Fraser’s core business, this appear to be going from strength to strength. Its basic adjusted earnings per share increased by 17% to 70.9p, for the 53 weeks ended 30 April 2023 (2022: 53.9p).
What next?
It’s unclear what Mike Ashley plans to do with these minority stakes. If you believe the speculation, he wants to launch takeover bids for them all.
I suspect he might do nothing and adopt the approach of Warren Buffett, whose favourite holding period is forever.
