RBC Capital ups Frasers Group to ‘outperform’

It said Frasers' current valuation fails to discount the likely resilience of its Sports Retail business, its property value and its strategic stakes, for instance in Hugo Boss.

RBC said Frasers maintains a dominant position in the UK Sports Retail segment, which accounts for around 50% of group sales, with particular expertise in running, football and live/train.

It noted that over the last nine years, the company has successfully pivoted from discounting third party brands heavily to drive sales of its own higher margin brands "to more of a brand elevation strategy".

RBC said Frasers has improved its brand relationships which has given it access to better product, particularly for flagship stores.

"This has made it easier to work with other brands such as North Face, On Running, Columbia and Salomon," it said.

RBC estimated that Frasers' strategic investments amount to more than £900m at current valuations, amounting to about £2 per share. Of this, the largest relates to Frasers’ stake in Hugo Boss, "with which it has developed a strong strategic partnership and history of value creation for Frsers’ shareholders".

RBC said property investment remains a key focus for Frasers, to satisfy its occupational demand and potentially to deliver strong property returns.

In Financial Services, meanwhile, the group is developing its Frasers Plus credit offer as a new revenue stream and key part of its retail ecosystem.

RBC said the valuation is starting to look compelling. Based on its estimates, the stock is trading at just approximately 8x FY25 estimated price-to-earnings, which it thinks fails to reflect the cash generation of the Retail business or its asset backing.

The bank said it values the shares at 1,050p based on an updated discounted cash flow and sum-of-the-parts analysis.

RBC said it has applied a ‘speculative risk’ qualifier due to M&A risk and to Frasers’ relative lack of liquidity.

At 1000 GMT, the shares were up 2.5% at 786.50p.