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Who’s the Oddball UK Tycoon who (Motley Fool says) will make investors rich?

Checking out a teaser pitch for the Motley Fool UK's flagship newsletter

By Travis Johnson, Stock Gumshoe, February 9, 2015

“HATED by the city…

“DISLIKED by many of his own shareholders…

“IGNORED by investors who only read the tabloid headlines…

“This Controversial Retail Tycoon is About to Make a Daring E-commerce Play That’s Set to Take Many People By Surprise….”

That’s the intro to the teaser pitch from the Motley Fool for their Share Advisor service, which is intended to be the UK flagship newsletter for the company, the way Dave and Tom Gardner’s Stock Advisor is the heart of the Motley Fool’s premium US operations. The Motley Fool has been in the UK for a long time, but the Share Advisor letter is only two or three years old, and I haven’t seen a track record for their picks (they don’t seem to publicize the overall track record like they do for the US letters).

So it’s going to be a UK-listed company, but they’re teasing a large and pretty well-known firm so I’m sure it’s relatively easy for investors on this side of the Atlantic to buy stock as well, should they be so inclined.

What, then, is the “secret” stock? Let’s see what clues they send our way, starting with the description of the controversial controlling shareholder:

“I’d like to reveal how one of Britain’s most controversial retail tycoons is about to make a daring e-commerce play that could TREBLE his online profits within 5 years…

“…and make a huge potential return for savvy investors who get in now.

“If we’re right, this could be one of the best investments of 2015 – by quite a long shot.

“Not that you’d know this from the owner’s reputation – or from reading the newspaper headlines!

“Talk about making enemies!

“The tycoon behind this retail empire is a controversial figure. Hated by the City. Disliked by some of his own shareholders.”

So… an executive being unpopular in the City, or on Wall Street, ain’t necessarily a bad thing given the focus on short-term metrics in both of those financial centers (or centres, for our UK friends)… but nor does it mean that the company will be a great long-term investment. Do we get some more clues? Indeed…

“Sure, everyone knows the bricks-and-mortar side of this company. Mostly likely you’d recognise the company’s logo and brand instantly. You may have even visited this store yourself without realising its potential.

“But it’s what’s happening online that’s the real story. And this is why this company has caught the eye of the investment team here at Motley Fool Share Advisor….

“You’ll be familiar with this retail company from the founder’s headline-grabbing stories. In the past he’s called City analysts ‘a bunch of cry-babies.’ He’s even angered his own shareholders with his maverick antics.

“But I don’t care what anyone says…

“You don’t just accidentally stumble your way into £2.7 billion-a-year turnover business!

“This tycoon founded his company in 1982, aged just 18. Thirty-three years on, he’s at the helm of a retail empire that we think is nowhere close to fulfilling its potential. And in our view he deserves much more credit as a strategist than he gets.”

Who, then, is this “maverick” tycoon? Mike Ashley, who is the founder and controlling shareholder of Sports Direct (SPD in London, SDISY on the pink sheets), the leading sporting goods/equipment retailer in the UK. Ashley owns Newcastle United as well, so is in the news quite a bit, but is indeed controversial, and prickly toward the City analysts. He has called them “crybabies” before, though I think that dates to 2007, and he has lately been in the news because he sold off a portion of his Sports Direct shares and no one is quite sure why or what he’s planning next.

Sports Direct has grown through acquisitions, particularly across Europe where they have 50-60 stores or so (they have more than 400 in the UK), and they’ve also, with Ashley’s hand apparently firmly on the tiller, been gambling on the shares of other UK retailers by taking small stakes and/or selling put options. Perhaps related to those cross-shareholders with companies like Tesco, Sports Direct has also apparently gotten some mini-stores into space controlled by other retailers. I can’t say that I know the company at all, Ashley is known for being a genius at building the brand and controlling discounts and logistics, and for selling his company-owned brands (they’ve bought some well-known brands along the way, like Slazenger and Dunlap) at much lower prices alongside premium-priced stuff from Nike and Adidas.

And do they have a genius e-commerce plan that’s going to catapult the company forward? If so, I didn’t find much info about it in my twenty minutes of scanning through company materials. They do sell online, and appear to be doing pretty well with mobile traffic as well, but I don’t know if they’re exceptional in that arena or not. You can see how they describe their strategy to shareholders here.

The next catalyst is probably “what is Ashley going to do next” and “what were the Christmas sales like?” Their six-month results that include the holiday season should be out on February 19, I don’t know if they leak anything about their sales before that, and no one seems to know what Ashley might do next.

The stock has been very volatile, it trades at a pretty steep premium PE ratio now of about 24, and they have been able to grow revenue and earnings very nicely over the last few years, ever since they dug their way out of the multi-year malaise from 2008-2010 or so. Earnings growth in the last year or so was not as strong as it was in late 2012 and early 2013, but it’s still been pretty strong. Unlike most large, established UK retailers, they don’t pay a dividend. And Ashley, though he has sold down his stake over the years, still controls more than 50% of the company… so he can do pretty much whatever he wants.

Sound like the kind of stock you’d like to buy? Are they being opportunistic in expanding into European retail, or are they expanding too fast? Is Ashley a genius who will build this into far more than a UK sporting goods retailer, or have they saturated the market and left him to gamble on other companies? I have no idea, and I’ve never stepped into a Sports Direct location (the last time I was in the UK was 20+ years ago, and I was far more interested in the pubs than the sporting goods stores) but if you’ve got thoughts to share please do so with a comment below.


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concam07
concam07
7 years ago

Love the fact that you are looking at UK companies from time to time. Keep up the great work!
Re: The shops. I buy a decent amount of sports clothes and I pretty much go to Sports Direct or TK Max as these shops invariably offer the best value. In fact, if you want to buy sports clothes there aren’t too many other brick and mortar options around here. Even less if you want to actually buy some genuine sports equipment, like a tennis racquet. They also cater very well for the CHAV sports-casual end of the market. The shops are always pretty busy, but the shares do look a bit pricey.
Dan, London

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vivian lewis
7 years ago

we just sold out of Performance Sports Group at the advice of our Canada reporter Martin Ferera. He worried that too much of the mainly ice hockey line was being manufactured in high cost USA and sold in Canada and Russia. But they are also building out a retailing arm complete with an ice-rink so you can test the skates and clothes and sticks.

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Jim Jankowski
Jim Jankowski
7 years ago

Great article. I have to say I am a online shopper and I do believe the way the world is going to the internet for everything this could be a good stock.I purchase most of my sports stuff online after I go to a brick and mortar store to see what I want then check pricing. Most of the time it is cheaper online. The reason I say “could be”, there has been many of online retailers that started off great then flopped. I believe more research is needed before I make a decision but the idea is a good one. Thank you for all the work you put into your research it is appreciated.

Chevron39
Chevron39
7 years ago

Thanks for an interesting and informative e-mail service – appreciate you looking at UK shares – more please.
As to Sports Direct. Ashley is without doubt a retail genius but SD is only his public face. All his shares are held by a private company which also own this holdings in the football club as well as other investments. He has been playing with Debenhams for the last year or so taking large stakes. Nobody knows what his aim is but all these activities are in his private investment company. If he intends to launch a new Internet based retail vehicle it needn’t be via Sports Direct it could be through his private investment company. If successful he could then float a separate company.
He did sell lately a large number of shares in SD [£159m+ from memory]. The market does not know why but is was a fairly low percentage of his holding. At his age 60+ it would be sensible to partly dis-invest.
The shares in Sports Direct do not show up on my list for consideration – fundamentals not good for long term investment. However my Tec Analyst graph does indicate a short term signal [5/15 day trade] may occur soon. The share price has been in an uptrend since November but is well off 2014 high.

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freddy-potless
freddy-potless
7 years ago
Reply to  Chevron39

Mike Ashley turned 50 last year.

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Donald Bright
7 years ago

I tried buying a football shirt through Sports Direct online and it was a joke. I got a reply telling me they could not supply because my zip code was incorrect and the computer would not accept it. I emailed back telling them that i had lived at the same address for 10 years and the zip code had not changed and the zip code they had in their computer was wrong. A second reply from them simply told me their computer was never wrong and i was wrong.
I emailed back again and asked them if they would let me know what number they had in their computer for my zip code and i would use that to re order but i got no reply. I have since spoken to two other guys who had the same problem. If they have problems with their basics, good luck for the future but they certainly won’t have me aboard.

Feddie
7 years ago