by London-listed retailers Frasers Group and Next are two clothing retailers that will “dominate” the sector during a recession, according to a veteran Schroders fund manager. Andrew Brough, who heads the Schroder UK Mid Cap Fund, said the two conservatively managed companies are well placed to expand through acquisitions and gain market share in a downturn. Next, which has been helmed by CEO Simon Wolfson since 2001, acquired upscale retailer Joules and online furniture retailer Made.com during bankruptcy proceedings this month for a total of £37.4million ($45.90million). Made.com went public in early 2021 with a valuation of £775 million. Frasers Group, formerly known as Sports Direct and founded by billionaire Mike Ashley, has also been buying up companies at rock-bottom prices last month, including luxury homewares brand Amara.com and 250-year-old tailoring Gieves & Hawkes. Brough said Frasers is “without a doubt a top retailer in my view.” “[Frasers] and Next will dominate this particular apparel space,” he added. Brough believes some companies have grown at breakneck speeds over the past decade through unsustainable acquisitions. Such companies, he said, are at risk of failing in a high-yield environment and acquisition opportunities to their better-managed competitors.” “Ultimately, we prefer organic growth, or if you’re making acquisitions, take the Mike Ashley or Simon Wolfson approach where you buy cheap [bankruptcy] Administrator,” Brough said. “But there are too many who have made acquisitions and then just blown up.” Frasers Group shares are up 30.6% over the past year, outperforming the FTSE 350 General Retailer Index, which has fallen 29.3% in the same period. The Frasers Group is Brough’s largest holding, accounting for 6.7% of his fund. The fund manager, which has over £740m ($900m) in assets under management, also said retailers would benefit from the sterling’s appreciation against the US dollar as a large part of their input costs – like clothing, that they buy from suppliers in Asia – is priced in dollars. With the pound sterling up 17% from its all-time low in late September to $1.22 on Friday, businesses will benefit from the surge in purchasing power.” “Retailers who ran their businesses really tight are now benefiting from Sterling [rising] back to $1.22 and probably on the way to $1.30,” Brough said. Brough, who has managed his fund for 23 years, said he was more optimistic than others about the UK economy in the near term. “I am very positive about the market. I think next year we will be surprised at how resilient the UK economy is,” he added.
Buy shares in Frasers Group and Next plc, fund manager says, ahead of recession
