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This is what £10k invested in Mike Ashley’s Frasers Group is worth after a year. Can it keep flying?

What’s in a name? If you’re in the business of building brands, an awful lot. Sports retailer Sports Direct International’s name reflected a strong brand for its flagship chain, everybody knows its blue and red shop signs. They’re not classy, but they are clear.

Spend, spend, spend

Everybody knows director Mike Ashley too, perhaps the best-known FTSE 250 boss. His personal brand isn’t so strong, especially if you live in the Newcastle area. That didn’t worry investors while the Sports Direct share price was racing away, but it fell from grace as many questioned his strategy of mopping up distressed retailers, seemingly at random.

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His spending spree has included Bob’s Stores and Eastern Mountain Sports in the US, alongside UK purchases Evans Cycles, Sofa.com, Game Digital, fashion firm Jack Wills, and his best-known acquisition, House of Fraser, which completed in August 2018 at a cost of £90m.

Ashley missed out on Debenhams and online retail and education group Findel (now known as Studio Retail), while other targets have included Patisserie Valerie, LK Bennett and Hamleys.

Second thoughts

Investors cannot quite decide whether he is the ‘saviour of the high street’ seizing a “generational opportunity”, as he has called it, or is deluded by dreams of omnipotence. While others flee the high street meltdown for online safe havens, Ashley has been heading into the conflagration.

In this respect, he is following one part Warren Buffett’s famous mantra, by being “greedy while others are fearful”, but greed isn’t always good. Online shopping, squeezed wallets and an uncertain economy make this a brave call.

Even Ashley has had second thoughts, admitting at one point that he regretted his purchase of House of Fraser, which was losing almost £3m a week.

What’s in a name?

Despite that, Ashley has doubled down on his acquisition, by relabelling Sports Direct as Frasers Group (LSE: FRAS), in a bid to shift his retail empire way upmarket. So is there substance behind it?

Last year, analysts were sceptical, with 50% recommending investors sell, according to research from AJ Bell. Only Pearson and Marks & Spencer were more reviled. But while Pearson fell 5% and M&S 31%, they got it wrong with Frasers Group, as the share price soared a stonking 92.5% across 2019, turning a £10,000 investment into £19,250. Unsurprisingly, this has prompted many to take a second look.

Posh boy

In a further shift upmarket, Frasers Group recently bought a 12.5% stake in the luxury British handbag maker Mulberry, as part of its “key strategic priority” to reposition the group towards “premium third-party brands”

Other Frasers Group brands include Donnay, Flannels, Karrimor, Kangol, Lillywhites, Lonsdale, Slazenger and a 26% stake in French Connection.

With its recent Belgian tax issues apparently cleared up, the £2.4bn group’s outlook seems brighter. My worry is that Ashley is building his empire on unstable ground, as the high street remains under massive pressure and I cannot see where the recovery will come from. Going upmarket may help, but is it too little, too late?

Don’t buy expecting a repeat of the recent share price surge, I’d rather watch and wait. Whatever happens next, it won’t be boring. Mike Ashley never is.

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Harvey Jones 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.