Missguided sale could be huge for Frasers Group, says Shore Capital

Frasers is currently in advanced negotiations to sell Missguided, just 18 months after the former saved the latter from administration.

The deal, which would mark Shein's first acquisition of a British fashion brand, is expected to include Missguided's brand and other intellectual property, with its head office likely to remain under the control of Frasers Group.

Shore Capital said that the deal could result in a "strategic partnership" between Shein and Frasers, given Shein's recent investment in SPARC Group, which operates high street name Forever 21.

"As part of its deal with Forever 21, Shein is considering providing customer services like returns at Forever 21’s physical locations. A similar arrangement could be made with Frasers' stores, offering customers more flexibility and thus enhancing customer experience," the broker said.

"Given Frasers' strong retail network in the UK, the company could serve as a distribution hub for Shein, reducing shipping times and costs for the latter’s UK customers.Partnering with Frasers could offer Shein a more mature and possibly more affluent customer base, while Frasers could gain access to Shein's younger demographic."

Meanwhile, Shore Capital suggested that Frasers could stand to benefit by listing stock as a third-party retailer on Shein's platform, which would open up 120 million further users across the globe.

Regarding Frasers' share price, the broker said that a price-to-earnings multiple of just 9.9 on current-year earnings, falling to 8.9 the following year' is too cheap compared to the wider sector, considering its strengthening market position and diversification with its consumer offering.

"A potential partnership with global online retail player Shein could represent a transformational milestone for Frasers, which is already undergoing a significant strategic elevation and implementation of its credit offerings."

Shore Capital reiterated its 'buy' recommend for the stock, which was down 0.4% at 801p on Monday morning.