Who’s the Oddball UK Tycoon who (Motley Fool says) will make investors rich?

Checking out a teaser pitch for the Motley Fool UK's flagship newsletter

By Travis Johnson, Stock Gumshoe, February 9, 2015

“HATED by the city…

“DISLIKED by many of his own shareholders…

“IGNORED by investors who only read the tabloid headlines…

“This Controversial Retail Tycoon is About to Make a Daring E-commerce Play That’s Set to Take Many People By Surprise….”

That’s the intro to the teaser pitch from the Motley Fool for their Share Advisor service, which is intended to be the UK flagship newsletter for the company, the way Dave and Tom Gardner’s Stock Advisor is the heart of the Motley Fool’s premium US operations. The Motley Fool has been in the UK for a long time, but the Share Advisor letter is only two or three years old, and I haven’t seen a track record for their picks (they don’t seem to publicize the overall track record like they do for the US letters).

So it’s going to be a UK-listed company, but they’re teasing a large and pretty well-known firm so I’m sure it’s relatively easy for investors on this side of the Atlantic to buy stock as well, should they be so inclined.

What, then, is the “secret” stock? Let’s see what clues they send our way, starting with the description of the controversial controlling shareholder:

“I’d like to reveal how one of Britain’s most controversial retail tycoons is about to make a daring e-commerce play that could TREBLE his online profits within 5 years…

“…and make a huge potential return for savvy investors who get in now.

“If we’re right, this could be one of the best investments of 2015 – by quite a long shot.

“Not that you’d know this from the owner’s reputation – or from reading the newspaper headlines!

“Talk about making enemies!

“The tycoon behind this retail empire is a controversial figure. Hated by the City. Disliked by some of his own shareholders.”

So… an executive being unpopular in the City, or on Wall Street, ain’t necessarily a bad thing given the focus on short-term metrics in both of those financial centers (or centres, for our UK friends)… but nor does it mean that the company will be a great long-term investment. Do we get some more clues? Indeed…

“Sure, everyone knows the bricks-and-mortar side of this company. Mostly likely you’d recognise the company’s logo and brand instantly. You may have even visited this store yourself without realising its potential.

“But it’s what’s happening online that’s the real story. And this is why this company has caught the eye of the investment team here at Motley Fool Share Advisor….

“You’ll be familiar with this retail company from the founder’s headline-grabbing stories. In the past he’s called City analysts ‘a bunch of cry-babies.’ He’s even angered his own shareholders with his maverick antics.

“But I don’t care what anyone says…

“You don’t just accidentally stumble your way into £2.7 billion-a-year turnover business!

“This tycoon founded his company in 1982, aged just 18. Thirty-three years on, he’s at the helm of a retail empire that we think is nowhere close to fulfilling its potential. And in our view he deserves much more credit as a strategist than he gets.”

Who, then, is this “maverick” tycoon? Mike Ashley, who is the founder and controlling shareholder of Sports Direct (SPD in London, SDISY on the pink sheets), the leading sporting goods/equipment retailer in the UK. Ashley owns Newcastle United as well, so is in the news quite a bit, but is indeed controversial, and prickly toward the City analysts. He has called them “crybabies” before, though I think that dates to 2007, and he has lately been in the news because he sold off a portion of his Sports Direct shares and no one is quite sure why or what he’s planning next.

Sports Direct has grown through acquisitions, particularly across Europe where they have 50-60 stores or so (they have more than 400 in the UK), and they’ve also, with Ashley’s hand apparently firmly on the tiller, been gambling on the shares of other UK retailers by taking small stakes and/or selling put options. Perhaps related to those cross-shareholders with companies like Tesco, Sports Direct has also apparently gotten some mini-stores into space controlled by other retailers. I can’t say that I know the company at all, Ashley is known for being a genius at building the brand and controlling discounts and logistics, and for selling his company-owned brands (they’ve bought some well-known brands along the way, like Slazenger and Dunlap) at much lower prices alongside premium-priced stuff from Nike and Adidas.

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And do they have a genius e-commerce plan that’s going to catapult the company forward? If so, I didn’t find much info about it in my twenty minutes of scanning through company materials. They do sell online, and appear to be doing pretty well with mobile traffic as well, but I don’t know if they’re exceptional in that arena or not. You can see how they describe their strategy to shareholders here.

The next catalyst is probably “what is Ashley going to do next” and “what were the Christmas sales like?” Their six-month results that include the holiday season should be out on February 19, I don’t know if they leak anything about their sales before that, and no one seems to know what Ashley might do next.

The stock has been very volatile, it trades at a pretty steep premium PE ratio now of about 24, and they have been able to grow revenue and earnings very nicely over the last few years, ever since they dug their way out of the multi-year malaise from 2008-2010 or so. Earnings growth in the last year or so was not as strong as it was in late 2012 and early 2013, but it’s still been pretty strong. Unlike most large, established UK retailers, they don’t pay a dividend. And Ashley, though he has sold down his stake over the years, still controls more than 50% of the company… so he can do pretty much whatever he wants.

Sound like the kind of stock you’d like to buy? Are they being opportunistic in expanding into European retail, or are they expanding too fast? Is Ashley a genius who will build this into far more than a UK sporting goods retailer, or have they saturated the market and left him to gamble on other companies? I have no idea, and I’ve never stepped into a Sports Direct location (the last time I was in the UK was 20+ years ago, and I was far more interested in the pubs than the sporting goods stores) but if you’ve got thoughts to share please do so with a comment below.

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