Sports Direct faces angry investors and is Peloton really worth $8.2 billion?

Wednesday, September 11, 2019 - 09:26

Sports Direct

“Retail kingpin Mike Ashley faces a crunch Sports Direct annual general meeting later with an expected shareholder rebellion against his re-election as a director.

“It’s probably not a coincidence that the media is banned from the AGM as the company finds itself increasingly under siege.

“Ashley’s own shopping spree in the past year or so is not winning many friends among investors with serious questions raised about the decision to buy House of Fraser and Jack Wills.

“Given an extremely difficult industry backdrop you have to question why the retail entrepreneur is so keen to hoover up UK retail assets.

“Though, even his biggest detractors would have to concede that Ashley has something about him, having built Sports Direct from a single store in 1982 to the UK’s largest sporting goods retailer.

“When he picks up stores from the administrators, he typically gets plenty of cheap inventories that he can sell through his raft of retail chains and websites. He also acquires store chains out of administration free of debt and with no pension liabilities.

“However, the nagging concerns over corporate governance are not going away and it is not a good look that since Grant Thornton quit as the company’s auditor in August the company has been forced to plead for a big accountancy firm to take on the task.

“If by the close of today’s AGM Sports Direct has not secured an auditor it will have to tell business secretary Andrea Leadsom within a week that she has the power to make her own appointment.

“This would really sting given the additional damage to the firm’s reputation and because Ashley hardly strikes you as someone who would relish surrendering control in this way.”

Peloton

“Fitness group Peloton will have to pedal its story hard to convince investors that its business is worth as much as $8.2 billion.

“Anyone buying its shares at the forthcoming stock market listing will need faith that it can push up subscriber numbers to a high enough level that it can actually turn a profit.

“Admittedly its growth has been quite good with a sharp increase in subscriber numbers and revenue in recent years.

“The key issue is that its proposition is arguably too expensive to become mass-market, particularly when you can mimic its services in a budget way. All you have to do is buy a cheap exercise bike and play workout videos on Youtube or a DVD via a laptop perched on the back of a sofa or step ladder.

“Peloton is more optimistic, claiming its addressable market is 67 million household, of which 45 million are in the US.

“Being a loss-making business isn’t necessarily a problem for investors in the market as long as the proposition is deemed to be credible and a clear path to making a profit. Just look at how Beyond Meat’s shares have shot up.

“However, IPOs of companies with no profit in sight such as Uber haven’t got down as well as ultimately investors will only stomach constant cash burn and no positive returns for so long.

“Peloton offers all the usual buzzwords that excite investors, namely ‘disrupting a market’, ‘building a community’ and ‘creating an immersive experience’. But will that be enough to convince investors to chase the shares?”

These articles are for information purposes only and are not a personal recommendation or advice.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.


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