I check the biggest risers and fallers in the FTSE 100 most mornings. And on Monday I wasn’t expecting what I saw. By early morning, JD Sports Fashion (LSE: JD) was leading the way. At its highest point, the JD share price was up more than 8%. And at the time of writing, after the market closed, the gain stood at almost 6%.
That’s more than twice the FTSE 100 company in second place, Spirax-Sarco, so what was happening?
It’s all about the collapse of Arcadia, the owner of Topshop, Burton and Dorothy Perkins. And Mike Ashley is getting in on the act. It seems Mr Ashley, the man behind Frasers Group (LSE: FRAS), formerly Sports Direct International, offered to stump up £50m as a loan to keep things running for now. And he also appears keen to get his wallet out for any top-brand administration disposals.
Ex FTSE 100 company
Frasers Group was itself a FTSE 100 member when it was Sports Direct. But its share price is now down close to 50% since mid-2015. And it dropped out of the top index in 2016. So it all looks like a group of companies fighting over the remnants of our increasingly outdated and struggling high street giants.
Anyway, the mooted loan appears to have fallen through quickly. And observers expect Arcadia to call in Deloitte as administrators within days. So what has this got to do with JD Sports?
JD is still a buoyant FTSE 100 company. And it’s in a more powerful position than most to notch up bargain-priced acquisitions among the strugglers. It’s been pursuing a possible acquisition at Debenhams for some time, and a deal was rumoured to be about to emerge last week. But in recent days, investors appear to have gone off that idea, pushing the JD share price down nearly 15% last week week. Why?
Well, Arcadia is Debenhams’ biggest concession-holder. Debenhams stores are home to numerous outlets for a variety of Arcadia’s brands. The Arcadia collapse that could be as little as hours away throws the outlook for Debenhams into question again. Not that there was really much clarity in the first place.
Top dog struggle
So that seems to be what’s behind the JD Sports share price hike on Monday. It’s a collective sigh of relief from investors after exclusive talks between JD and Debenhams ended with no deal. But what happens now in the struggle for superiority between these FTSE 100 and FTSE 250 competitors? The way could be open for Frasers to make a new approach for Debenhams. And there might be opportunities for investors to make some profit from whoever comes out on top.
But do you know what my feeling is right now? Confusion, mainly. One thing I am certain of is that I won’t be buying any of these shares any time soon.
JD Sports looks like a respectable FTSE 100 company with a great track record for investors. But its shares are on a P/E multiple of around 30, with tiny dividends on offer. Frasers Group’s prospective P/E is lower at 22. But there’s no dividend. And it’s driven by the sometimes mercurial Mike Ashley.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.