Chief executive Mike Ashley could be considering a move to take Frasers Group (Fraser) private, according to The Telegraph.
The retail giant, which owns high-street brands such as Sports Direct, House of Fraser, Evans Cycles, Flannels, and Game, is on course to report its highest ever annual profit of up to £350m after a strong recovery in recent months.
The last time it reached such figures was in 2015 with underlying profits of £300m.
Stellar recent performance, coupled with an intensive process to buy back its own shares over the past few months, has prompted fresh speculation of the group delisting from the London Stock Exchange.
Companies typically buy shares to reduce the number available to the public, which tends to push up the share price and is a way to return cash to investors aside from paying dividends.
Last week, the firm said it would spend a further up to £70m purchasing up to 10m of its own shares by April.
Currently, founder Ashley owns 68 per cent of the company.
Typically, once the 75 per cent threshold is reached, a bid for private ownership is imminent.
Ashley is set to step down from his leadership role and join the board as an executive director next May.
Taking the company private would give incoming Fraser boss – Michael Murray, Mike Ashley’s son-in-law – the chance to make changes to the company without public scrutiny from investors.
The group has so far said that purchasing more shares was to “reduce the share capital of the company”.
While Frasers faces challenging headwinds such as Omicron variant and hefty property expenses, logging £135m of impairments in its half-year results, a City source told The Telegraph a deal to take the FTSE 250 firm private may not be far off.
However, a takeover could prove costly for Ashley, as Fraser’s share price has increased by more than two thirds to more than 730p so far this year.
Royal Bank of Canada’s equity analyst Richard Chamberlain is doubtful that Ashley, who has been in charge since 2016, is in a rush to delist the 39-year-old retailer.
Commenting on the buyback programme, he said “They have surplus cash flow and are well under their three times net debt / underlying profits bank covenant. It helps to make their capital structure more efficient.”
Meanwhile, Peel Hunt’s retail analyst Jonathan Pritchard believes any transaction would be too costly at present.
He told The Telegraph: “Why didn’t he do it at £3? I don’t think that’s the game. The shares were cheap [when they started the buyback]. They have an investment agenda, they generate cash, so why wouldn’t you put your money where your mouth is?”
Net debt was £24m at the recent interim earnings, for the half year to October 24, down from £248m.
The company also recently arranged a new £930m loan with HSBC.
Shares in the company closed 0.54 per cent up at close of play on Friday.