market folly

We're posting up notes from the recent Sohn London investment conference.  Next up is Andy Brough of Schroder Investment Management who presented 2 longs: Sports Direct (LON:SPD) and Restaurant Group (LON:RTN).


Andy Brough's Presentation at Sohn London Conference

Long: Sports Direct

Mike Ashley is the best retailer he has come across in his 30 years of fund management. Brough likes sports retailing because there are only two quoted companies in the sector – there isn’t the high level of competition you get in general retailing. It’s profitable with gross margins between 40-48%.

Mike Ashley’s record of selling his own shares and buying back shares over the years proves he is a good capital allocator. Ashley has been a net buyer of shares recently and currently holds 65%.

Why buy Sports Direct now? It’s below the floatation price. It’s buying up other retailers on the cheap: House of Fraser (paid £90m), Evens Cycles (paid £8m - bought from Private Equity that paid £83m three years ago), Debenhams.

Brough believes that Sports Direct’s accounting is the most prudent in the FTSE 350. There are no exceptional items in the accounts. If they have a cost they take it on the chin through the P&L. As soon as stock comes into the business it’s automatically written down by 20% - it’s a way of smoothing profits.

Innovation is the key to retailing. Sports Direct’s click and collect regime has been applied to House of Fraser and has lifted the average spend per shop to £40.


Long: Restaurant Group (LON:RTN)

Restaurant Group is the largest concession operator in airports and stations in the UK.

CEO, Andy McCue, has an almost forensic-like attention to detail.  He makes good use of data to steer the business.

Restaurant Group’s shares have gone from 230p to 140p since the acquisition of Wagamama. Brough believes that Wagamama will become an excellent addition. Some Frankie’s and Benny’s restaurants will be converted into Wagamama’s. Also, underused kitchens at Frankie’s and Benny’s are being put to better use by the Gourmet Burger brand to allow home delivery by Deliveroo.

Be sure to check out the rest of the presentations from the Sohn London investment conference.