Ashley’s 11th hour bid for Debenhams, and there is no stopping Games Workshop

“The FTSE 100 started lower on Monday with Brexit risks front and centre. Hopes that a deal would be completed this weekend have failed to materialise and downbeat commentary on the prospects for an agreement have driven a big slump in sterling – to its lowest levels since November,” says AJ Bell Investment Director Russ Mould.

“It is very difficult to work out how much of the toing and froing is stage-managed theatrics and how much represents genuine differences between the UK and EU. The market just wants to know one way or another if a no-deal outcome is on the agenda.

“The other big focus is on a potential US stimulus package – with US stocks closing at new record highs on Friday after a weak jobs report was seen as increasing the prospects of a bi-partisan effort to support the economy.

“Oil fell on to the back foot at the start of the new week after the gains driven by the eventual OPEC pact last Thursday, with a continuing surge in coronavirus cases prompting concerns over demand.”

Frasers

“To no great surprise retail kingpin Mike Ashley’s Frasers Group is in for Debenhams at the 11th hour.

“Ashley has been the great dealmaker of the high street in recent years and after JD Sports pulled out of its own deal for the department store it felt almost inevitable he would throw his hat into the ring.

“Having acquired another ailing chain in House of Fraser in 2018, you can see what Ashley’s playbook is likely to be with some store closures a relative certainty, perhaps even more so given House of Fraser and Debenhams stores will often sit cheek by jowl. He will also look to drive a hard bargain with landlords.

“Ashley might be interested in some of Debenhams’ in-house brands which he might then be able to sell in other outlets.

“The queues outside Debenhams since lockdown was lifted in England suggest the wider Debenhams name still resonates with shoppers although there was also likely an element of opportunistic bargain hunters inspired what they expected to be a big closing down sale.

“If the brand had that much appeal Debenhams arguably wouldn’t be in the mess it is now. It failed to adapt to the changing retail landscape and was left looking sluggish by its rivals.

“Obstacles to a deal remain, time is short and Frasers itself acknowledges the Arcadia administration process as an obstacle given it is/was the main concession holder in Debenhams stores.

“What seems likely is that the recent consolidation and failures in retail will not be the end of the story with the weaker players facing a big reckoning after a desperate attempt to salvage Christmas.”

Games Workshop

“The miniature figures seller continues to surprise the retail world with very strong trading. Guidance for pre-tax profit to be at least £90 million in its first-half period equates to a 13% upgrade since 6 November guidance for profit to be no less than £80 million.

“Once considered to be nothing more than a fad spurred by the popularity of the Lord of Rings films, the fantasy worlds created by Games Workshop’s plethora of figures and landscapes have become big business in many parts of the world.

“Cynics will say the sustainability of its current trading strength is questionable, given how it is likely to have seen a boost from people stuck indoors, looking for something to do during lockdown. They might say that as society reopens, hopefully from 2021, then painting trolls and orcs could be side-lined in favour of meeting friends in the pub, going to the theatre, concerts and cinema, and other activities which were generally unavailable during the pandemic.

“However, it is important to consider that Games Workshop’s success pre-dates the pandemic by a long way. It has enjoyed very strong trading for many years, as evident by plans having already been made to further monetise its intellectual property by developing a TV series which it wouldn’t have done without successful products.

“This company has clear earnings momentum and products which are clearly resonating with a growing and hopefully loyal fan base. It’s also impressive that the business has been growing even while many of its shops have been closed.

“There was a feeling among many people that its shops were crucial to its success because they were a place to visit, play games and interact with staff who were equally enthusiastic about the fantasy worlds. This year’s sales figures have shown that the physical stores aren’t as crucial to the business as one might have expected.”

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