Frasers Group (LSE:FRAS), the FTSE 100 retailer, has put in place a generous incentive scheme for its chief executive. Michael Murray will receive a £100m bonus if he can get the share price to £15 by October 2025.
With the stock currently changing hands for £7, Murray needs to more than double the company’s value for him to qualify for his enormous payout. If he succeeds, a £10,000 investment made today would become £21,429.
But it’s not going to be easy. He somehow needs to increase the company’s market cap by around £3.7bn.
I don’t think that’s possible through organic growth alone.
Growing nicely
Between 2018 and 2022, the company grew its revenue and operating profit by 43% and 52% respectively.
It also increased its profit before tax by a factor of four.
That’s an impressive performance and, during this time, the company’s share price increased by 78%.
The revenue growth was achieved principally through the expansion of Sports Direct, and the purchase of some distressed brands such as House of Fraser and Debenhams.
Revenue by division
2018 (£m)
2022 (£m)
Change (%)
UK sports retail
2,182
2,640
+21
European sports retail
637
790
+24
Rest of the world retail
192
150
+63
Premium lifestyle
162
1,057
+652
Wholesale and licensing
186
168
-10
Total
3,359
4,805
+43
Source: company accounts
Shopping list
The company’s appetite for buying companies and brands remains unsatiated. It recently stated that “driving growth through strategic investments is a core part of Frasers’ DNA“.
It’s been on a spending spree in recent times, quietly building up stakes in a number of other retailers. Four of the six are in the fashion sector but the other two — Currys and AO World — are in the business of selling consumer electronics.
The group now has interests in clothing, footwear, sofas, bicycles, televisions, computers, and video games.
Stock
Last purchase
Ownership (%)
Value of shareholding (£m)
Currys
22 June 2023
9.4
57
boohoo
19 June 2023
5.0
21
ASOS
15 June 2023
10.6
50
AO World
12 June 2023
18.9
92
Hugo Boss
6 January 2023
3.9
16
Mulberry Group
19 November 2020
36.8
56
Source: regulatory filings
Few know whether the company intends to increase some or all of these positions further, with a view to launching a full takeover bid.
Personally, I think it’s going to have to buy at least one of them if its share price is to double by October 2025.
Valuation
Frasers expects to make a profit before tax of £450m-£500m in its 2023 financial year. We’ll know whether it achieved this later in July.
If the mid-point is realised, this would give a price-to-earnings (P/E) ratio of approximately 6.5. This compares favourably to JD Sports, which is valued at around 10 times’ earnings.
Even with a P/E ratio of 10, and a profit at the top end of expectations, the company would have a market cap of ‘only’ £5bn. It therefore needs to find another £1.9bn of value elsewhere. In my opinion, this is only possible with a major acquisition.
Although the company generated £628m of cash from its operating activities in 2022, I think it would have to raise more money if it were to increase significantly one (or more) of its strategic investments.
With borrowings around 2.5 times’ operating profit, and Mike Ashley — whose wealth is largely derived from his 70% shareholding — unlikely to be able to participate in a meaningful way, some creative solutions will be required.
But that’s why they pay Murray the big bucks!
Final thought
I already own shares in Frasers — I like the fact that the chief executive’s incentive means his interests are aligned with mine.
Although I’m cautiously optimistic that the stock will reach £15 by the autumn of 2025, there’s no guarantee. But I doubt there’s a harder working boss in the FTSE 100, given how much is at stake.
The post Could investors turn £10,000 into £21,429 in 27 months with this FTSE 100 stock? appeared first on The Motley Fool UK.
Pound coins for sale — 51 pence?
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
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setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
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James Beard has positions in Frasers Group Plc. 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.
Frasers Group (LSE:FRAS), the FTSE 100 retailer, has put in place a generous incentive scheme for its chief executive. Michael Murray will receive a £100m bonus if he can get the share price to £15 by October 2025.
With the stock currently changing hands for £7, Murray needs to more than double the company’s value for him to qualify for his enormous payout. If he succeeds, a £10,000 investment made today would become £21,429.
But it’s not going to be easy. He somehow needs to increase the company’s market cap by around £3.7bn.
I don’t think that’s possible through organic growth alone.
Growing nicely
Between 2018 and 2022, the company grew its revenue and operating profit by 43% and 52% respectively.
It also increased its profit before tax by a factor of four.
That’s an impressive performance and, during this time, the company’s share price increased by 78%.
The revenue growth was achieved principally through the expansion of Sports Direct, and the purchase of some distressed brands such as House of Fraser and Debenhams.
Revenue by division
2018 (£m)
2022 (£m)
Change (%)
UK sports retail
2,182
2,640
+21
European sports retail
637
790
+24
Rest of the world retail
192
150
+63
Premium lifestyle
162
1,057
+652
Wholesale and licensing
186
168
-10
Total
3,359
4,805
+43
Source: company accounts
Shopping list
The company’s appetite for buying companies and brands remains unsatiated. It recently stated that “driving growth through strategic investments is a core part of Frasers’ DNA“.
It’s been on a spending spree in recent times, quietly building up stakes in a number of other retailers. Four of the six are in the fashion sector but the other two — Currys and AO World — are in the business of selling consumer electronics.
The group now has interests in clothing, footwear, sofas, bicycles, televisions, computers, and video games.
Stock
Last purchase
Ownership (%)
Value of shareholding (£m)
Currys
22 June 2023
9.4
57
boohoo
19 June 2023
5.0
21
ASOS
15 June 2023
10.6
50
AO World
12 June 2023
18.9
92
Hugo Boss
6 January 2023
3.9
16
Mulberry Group
19 November 2020
36.8
56
Source: regulatory filings
Few know whether the company intends to increase some or all of these positions further, with a view to launching a full takeover bid.
Personally, I think it’s going to have to buy at least one of them if its share price is to double by October 2025.
Valuation
Frasers expects to make a profit before tax of £450m-£500m in its 2023 financial year. We’ll know whether it achieved this later in July.
If the mid-point is realised, this would give a price-to-earnings (P/E) ratio of approximately 6.5. This compares favourably to JD Sports, which is valued at around 10 times’ earnings.
Even with a P/E ratio of 10, and a profit at the top end of expectations, the company would have a market cap of ‘only’ £5bn. It therefore needs to find another £1.9bn of value elsewhere. In my opinion, this is only possible with a major acquisition.
Although the company generated £628m of cash from its operating activities in 2022, I think it would have to raise more money if it were to increase significantly one (or more) of its strategic investments.
With borrowings around 2.5 times’ operating profit, and Mike Ashley — whose wealth is largely derived from his 70% shareholding — unlikely to be able to participate in a meaningful way, some creative solutions will be required.
But that’s why they pay Murray the big bucks!
Final thought
I already own shares in Frasers — I like the fact that the chief executive’s incentive means his interests are aligned with mine.
Although I’m cautiously optimistic that the stock will reach £15 by the autumn of 2025, there’s no guarantee. But I doubt there’s a harder working boss in the FTSE 100, given how much is at stake.
The post Could investors turn £10,000 into £21,429 in 27 months with this FTSE 100 stock? appeared first on The Motley Fool UK.
Pound coins for sale — 51 pence?
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
3 dividend stocks I just can’t refuse right now!
Turning a £20k ISA allowance into £39,261 a year in passive income!
Best AIM stocks to buy in July
I’d forget gold! There’s more growth potential in cheap shares in 2023
Zero savings? Here’s how I’d use the Warren Buffett method to build wealth and retire early!
James Beard has positions in Frasers Group Plc. 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.
