19th Dec 2022 14:31
(Alliance News) - Shore Capital on Monday said it continued to like the shares of both Frasers Group PLC and JD Sports Fashion PLC, after the sportswear retailers on Friday announced a GBP47.5 million transfer deal for 15 brands, as the Sports Direct-owner continues to accumulate, while the 'King of Trainers' pares down.
Frasers will acquire the "premium fashion brands" from JD Sports, which said the decision to sell followed a "strategic review". JD Sports said the divestment is "significantly simplifying" its branded fashion offer.
The brands are Base Childrenswear, Choice, Clothingsites, Cricket, Giulio, Kids Cavern, Missy Empire, Nicholas Deakins, Pretty Green, Prevu Studio, Rascal Clothing, Tessuti, Scotts, Watch Shop and Topgrade Sportswear.
JD Sports said the divestment will allow it to focus on "opportunities across the rest of the group", in particular international and digital expansion of the company's core premium sports fashion product.
Frasers' acquisitions of eight businesses took place on exchange, with the completion of the final seven expected to take place in early 2023. Frasers also will settle all the outstanding debt owed to JD Sports by the brands.
The sale will result in JD Sports recognising an exceptional charge in its annual accounts for the period to January 28, 2023 of around GBP100 million.
JD Sports Chief Executive Regis Schultz commented on Friday: "JD is rightly recognised for its laser focus on the customer and we are convinced that the most significant opportunities lie in the continued international development of the group's global sports fashion businesses.
"We are pleased to have agreed the sale of these attractive, but non-core, brands and I would like to express my sincere thanks to all colleagues at the businesses which form part of the transaction for their hard work and contribution to the group over the years."
Commented Clive Black at Shore: "The divestment to Frasers may raise an eyebrow or two given the characters behind the development of these two groups, namely Peter Cowgill and Mike Ashley. However, from the surface this looks like sensible activity by JD's new chief executive officer, Regis Schultz, centred upon focus and simplification."
Cowgill is the former CEO of JD Sports and Ashley is the founder and former CEO of Frasers.
"More broadly, we believe that JD is a high-class business which is set around strong core brands, excellent supplier relations, good execution, and a clear understanding of its core customer," Black said.
Referring to Frasers, the Shore analyst said: "This is an interesting purchase of equity and debt for a group that is hoovering up a lot of brands and assets."
In addition to House of Frasers and Sports Direct, Frasers owns Flannels and other retail brands.
"Frasers does need, to us, to show the real value in the broad portfolio of companies, labels and brands that now feature within its stable to make sure that there is more virtue than legacy," Black remarked. "That said, it is a well run venture whose equity is also undervalued in our opinion."
Shore rates both stocks at 'buy'. Shares in Frasers were down 0.9% at 728.21 pence on Monday afternoon, while JD Sports was down 1.9% at 115.90 pence on Monday.
By Tom Waite, Alliance News editor
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