8th Aug 2022 13:05
(Alliance News) - Joules Group PLC found a "new lease of life" on Monday after it confirmed it has had talks with FTSE 100-listed retailer Next PLC over a potential equity investment.
Leicestershire, England-based country lifestyle retailer Joules was trading 45% higher in London on Monday afternoon at 47.08 pence. Despite Monday's stellar showing, the stock is still down 66% in 2022 and has lost 83% over the past 12 months.
"Joules confirms that it is in discussions with Next about adopting its Total Platform services to support the group's long term growth plans," it explained.
Danni Hewson, AJ Bell financial analyst, said: "Posh wellies seller Joules has found a new lease of life on the stock market following news of a potential investment in the business by retail giant Next."
The move, if it goes ahead, will see Next inject about GBP15 million into Joules, noting the price will be "at no less than Joules' current market price".
As a result, Joules said Next would become a "strategic minority shareholder" in the lifestyle brand, without confirming the size of the stake. The equity investment would be subject to approval by Joules' shareholders, it added.
"Next doesn't typically buy companies outright so it seems unlikely that an initial investment in Joules will lead to a full takeover. Instead, expect to see it become an influential shareholder and for more of Joules' products to appear on Next's website," AJ Bell's Hewson said.
At the weekend, Sky News reported Next was in talks to acquire a 25% stake in the 33-year old brand, founded by Tom Joule.
Shares in Next were 0.1% lower at 6,438.00p.
Liberum noted the move for Joules follows an increase in Next's M&A activity over the past couple of years.
The stockbroker pointed to the acquisitions of: a majority stake in Victoria's Secret & Co UK arm in September 2020; a 25% indirect interest in Reiss in March 2021, which seen an equity investment of GBP33 million and debt investment of GBP10 million; and a 44% stake in mother and baby product retailer JoJo Maman Bebe, including a GBP16.3 million cash injection.
AJ Bell's Hewson said Gap UK, Reiss and Victoria's Secret all currently appear of Next's Total Platform.
"Next has a system called Total Platform, which enables third party retailers to grow their sales without large capital costs, operational risks or time developing sophisticated infrastructure," she added. "In essence, Next can offer more products on its website which makes it more attractive to customers, and it also earns a fee for handling the e-commerce needs of third parties."
Turning back to Joules, the retailer's stock has struggled following a series of disappointing updated.
"Once a shining star in the retail sector, Joules saw its share price collapse after a string of profit warnings," Hewson said.
In early July, Joules confirmed it was in talks with KPMG International Ltd to shore up its balance sheet. The company was responding to a Sunday Times report which stated that KPMG's debt advisory arm is exploring options to solidify the retailer's cash position. Options being mulled at the time included a capital raise, the Sunday Times reported.
The call to KPMG followed an update in early May that its profit in its Easter trading period slumped, along with news its chief executive is set to exit the company.
CEO Nick Jones outlined plans to step down from his role during the first half of the group's next financial year, with the current year ending in May.
By Paul McGowan; [email protected]
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