Directors’ Deals: Mike Ashley explores his options

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Mike Ashley, the former chief executive and current controlling shareholder of Frasers Group, is a prolific trader in more ways than one. Under his leadership, the company has bought and sold stakes in numerous retail peers, including Boohoo, AO World and Debenhams. 

Ashley has also been known to place sizeable bets on the fortunes of his own organisations.

Last week he did so again via the sale of put options over 1.5mn shares, all of which had a strike price of 820p — giving them a total value of more than £12mn — and an expiry date of December 2023. The deal was executed via four separate transactions between September 15 and 20. 

Frasers was informed on September 18 that Mash Holdings, a company through which Ashley holds shares in the company, had sold puts over 400,000 shares three days earlier. Three further transactions were announced in the days that followed, made by both Mash and Ashley himself. The Sports Direct founder is effectively betting that Frasers’ share price will sit above the 820p mark as of this December. If not, the buyer of the options has the right to sell them to Ashley at that price at the end of the year. 

Ashley has long been known for his use of options and spread bets to wager on his company’s fortunes. In March he and Mash sold £16mn of puts in Frasers with a strike price of 800p and an expiry date of September 2023. Last month saw the sale of puts worth a total of £8.2mn with a strike price of 820p, with a December expiry date.

Frasers shares closed at 804p on September 27, having risen 14 per cent year to date as the business continues to make headway during a tricky environment for retailers. The company grew adjusted pre-tax profit by 42 per cent to £478mn in the year to April 30, and last month confirmed it is on track to earn an equivalent figure of £500mn-£550mn in its current financial year.

Ashley owns around 72 per cent of Frasers’ issued share capital.

Ricardo directors pile in 

Engineering consultancy Ricardo used to be known for its work with automotive manufacturers. Now, however, most of its growth is coming from the environmental and energy transition side of the business. This is all well and good, but its mature automotive and industrial (A&I) arm, which provides powertrains for conventional vehicles, is declining fast, with revenue down almost 50 per cent in the year to June 30 2023. The division also incurred one-off impairment and restructuring costs of £23.4mn, causing the group to slip to a statutory loss before tax of £8mn.

The group’s management team looks undeterred, however. On September 14, chief executive Graham Ritchie bought 14,460 shares for a total of £74,614, new chief financial officer Judith Cottrell bought 9,617 shares for £49,624, and chair Mark Clare bought 20,000 shares for £102,524. Total insider ownership remains low, though, with Ritchie owning just 0.048 per cent of Ricardo’s issued share capital, and fellow directors owning even less.

Ricardo reported a record order book this month, with order intake up 23 per cent year-on-year at £522mn. Its growth prospects therefore look encouraging, even if its legacy business continues to cause problems. Analysts at Investec have flagged the valuation gap between the price paid by US-listed Tetra Tech for fellow engineering firm RPS in 2021 and Ricardo’s current share value. Tetra Tech bought RPS at an EV/Ebitda multiple of 12.7x, the broker noted, while Ricardo trades on a multiple of just 6.9x. 

Investors certainly seem a little wary of Ricardo in spite of, or in some cases perhaps because of, its ESG credentials. Given the direction of travel, however, we believe its valuation looks tempting — particularly as the energy and environment side of the group is so high margin.