Frasers Group (nee Sports Direct) raises stake in Hornby to 9%

[St Enodoc]

12 minutes ago, micklner said:

I wonder where the Gold Bars came from ????

McVitie's.

[ruggedpeak]

1 hour ago, teletougos said:

 

 

The question remains.

 

TT has shown pretty amazing early growth.  As predicted it found an obvious niche with folk wanting something more like OO, less like N, in smaller dwellings. Those people fed back that this was its appeal for them. So that guess was right. It's a growing part of the market.

 

But it will be a long time before it returns a profit. 

 

It'd be useful to know what he's done before when confronted with a production range with those characteristics, in a company he's bought.

 

Slow and steady growth with lots of production slot headaches on the way, doesn't sound appealing for someone with his approach or temperament.

Their business model is to acquire undervalued/underperforming companies or those that are in administration that fit with the wider group business. Hence lots of clothing and retail brands. They will essentially strip out the underperforming parts and sweat the valuable bits. This is often the brand and IP, as the day to day of selling clothes etc is the bit that is not profitable. So they take the brand and IP, get rid of those bits that aren't efficient/profitable and integrate it with existing operations and Fraser expertise in manufacturing, marketing, logistics, sales etc.

 

They are not afraid to take a punt and have lost money on occasions, they accept that as the nature of an aggressive approach. If you are a business person used to the high volumes and potential profits of high street fashion retail etc then would you see TT:120 or indeed model trains as a high profit or growth opportunity? No. But you would see a cheap, essentially unprofitable company with larges amounts of valuable IP in well known toy brands (Hornby, Corgi, Airfix etc) as things that could be leveraged by putting them with more generic toy business activities.

 

Ashley and co, for example, bought their way into a strong position in the outdoor leisure market over a number of years buying the likes of Karrimor, Blacks etc. Karrimor was once a leading UK outdoor equioment manufacturer, and is now basically a brand on generic low cost outdoor kit sold in Sports Direct. Blacks were a failing outdoor retailer but allowed them to consolidate market share in that sector, and they already had expertise in dealing with surplus retail property etc so fitted well into their existing activities.

 

So if Frasers see Hornby as an opportunity, history suggests that making model trains may nor be part of that future as they are unemotional about the brands, and if they continue with model trains it will be an operation that fits with their existing low cost, high volume, high street focused approach. Basically the sort of trains (and Corgi models and Airfix kits) you'd buy in the model equivalent of Sports Direct. Can't see them wanting to keep the international brands, they will be sold off. Obviously this is informed speculation but the concept of Frasers seeing model trains as a significant business opportunity to invest millions in is almost zero. 

[spamcan61]

3 minutes ago, ruggedpeak said:

Obviously this is informed speculation but the concept of Frasers seeing model trains as a significant business opportunity to invest millions in is almost zero. 

This.

[1andrew1]

6 minutes ago, ruggedpeak said:

Blacks were a failing outdoor retailer but allowed them to consolidate market share in that sector, and they already had expertise in dealing with surplus retail property etc so fitted well into their existing activities.

I think a lot of your hypothesis makes sense. Small point of accuracy - Blacks went into administration and was acquired by JD Sports. Sports Direct did have a 30% stake in Blacks but failed to acquire the company.

[Legend]

1 hour ago, ruggedpeak said:

Which is exactly why Ashely and co are taking a stake. They specialise in businesses with a strong brand but weak management who can't turn a meaningful profit from it.

And that is all very good and necessary .  They need someone to look at the business . I think its costs are still out of line with turnover , they need to get inventories down and they need systems in place that are easy to use for customers to place orders, track them and are fast and nimble , especially as they are now up against some really good opposition. So they do need the basics in place . But I do still believe for Hornby to be successful it needs someone that’s steeped in trains , for Airfix.  Model aircraft etc - otherwise they end up investing in lemons . 

[1andrew1]

It will be interested to see if WonderWorks is rolled out in conjunction with Frasers Group. With space in shopping centres and a move to leisure provision in them, there could be an opportunity but I think it will be limited to a handful of big UK cities.

Edited March 21 by 1andrew1

[BachelorBoy]

2 hours ago, teletougos said:

 

 

The question remains.

 

TT has shown pretty amazing early growth.  As predicted it found an obvious niche with folk wanting something more like OO, less like N, in smaller dwellings. Those people fed back that this was its appeal for them. So that guess was right. It's a growing part of the market.

 

But it will be a long time before it returns a profit. 

 

It'd be useful to know what he's done before when confronted with a production range with those characteristics, in a company he's bought.

 

Slow and steady growth with lots of production slot headaches on the way, doesn't sound appealing for someone with his approach or temperament. 

 

 

 

I suspect TT will be under the microscope. It's not too late to abandon it.

 

[ruggedpeak]

44 minutes ago, Legend said:

And that is all very good and necessary .  They need someone to look at the business . I think its costs are still out of line with turnover , they need to get inventories down and they need systems in place that are easy to use for customers to place orders, track them and are fast and nimble , especially as they are now up against some really good opposition. So they do need the basics in place . But I do still believe for Hornby to be successful it needs someone that’s steeped in trains , for Airfix.  Model aircraft etc - otherwise they end up investing in lemons . 

Yes, but the key point here is that the actual model train business is likely to be of zero interest to Frasers, it is low growth, low margin, low volume. Unless there is some radical shift in Frasers' strategy away from a multi-billion pound turnover high street and online businesses to doing niches, Frasers' only interest in Hornby is its brands and IP. Frasers are not in the business of running small cap niche firms better.

 

I think it unlikely, but they could go with something like 1andrew1's suggestion of a national rollout of Wonderworks and do something like Simon George with Heaton Lodge and his retail business, but on a much bigger scale, driven by Hornby plc IP.

 

At the obvious risk of being completely wrong, I see no reason for Frasers to have any reason to continue with what most of us would recognise as model trains if they took over Hornby. Probably just some toy trains masquerading as models to preserve the core brand identity. Modern fashion/clothing retail is a fast paced business, high volumes, hugely variable margins, with clothing be able to be designed and on the shelves within days despite coming from overseas. The sports goods are generic manufacture and just branded. Sports Direct is not a Nike turning out cutting edge sports apparel, it is putting known brands on generic stuff. Model trains taking months to design and even longer to get into production and then hit the shelves does not fit that model as far as I can see, especially if the financial returns are not competitive. 

 

But we shall see!!

[JohnR]

10 minutes ago, BachelorBoy said:

 

I suspect TT will be under the microscope. It's not too late to abandon it.

 

 

Given the success of TT, I suspect the result will be to lean into it, not abandon it. 

[Legend]

11 minutes ago, ruggedpeak said:

Yes, but the key point here is that the actual model train business is likely to be of zero interest to Frasers, it is low growth, low margin, low volume. Unless there is some radical shift in Frasers' strategy away from a multi-billion pound turnover high street and online businesses to doing niches, Frasers' only interest in Hornby is its brands and IP. Frasers are not in the business of running small cap niche firms better.

 

I think it unlikely, but they could go with something like 1andrew1's suggestion of a national rollout of Wonderworks and do something like Simon George with Heaton Lodge and his retail business, but on a much bigger scale, driven by Hornby plc IP.

 

At the obvious risk of being completely wrong, I see no reason for Frasers to have any reason to continue with what most of us would recognise as model trains if they took over Hornby. Probably just some toy trains masquerading as models to preserve the core brand identity. Modern fashion/clothing retail is a fast paced business, high volumes, hugely variable margins, with clothing be able to be designed and on the shelves within days despite coming from overseas. The sports goods are generic manufacture and just branded. Sports Direct is not a Nike turning out cutting edge sports apparel, it is putting known brands on generic stuff. Model trains taking months to design and even longer to get into production and then hit the shelves does not fit that model as far as I can see, especially if the financial returns are not competitive. 

 

But we shall see!!

Not so sure it’s low margin Tony, or low growth come to that. While Hornbys share of market  probably hasn’t grown much if at all , there are lots of other companies that have entered the market .  Agreed that compared to his other commodities , sportswear etc , this is small beer . I really do wonder why he is dabbling with this , unless it’s to get into the actual profitability of the various segments , split them up and sell off . Might be a vehicle for Phoenix to get out of ownership of the overall group , by realising value splitting them up . 

 

 

[1andrew1]

8 hours ago, The Stationmaster said:

The bit that worries me is the asset-stripping reputation of Mr Ashley getting involved in 'strategy' for Hornby.  The share price hasn't reacted to the latest announcement which suggests that snmall onvestors don't yer see much in it and phoenix are staying in there.

Apparently, the share price rose 7% on the announcement before falling back.

 

I wasn't a fan of Ashley over his ownership of Newcastle but he has invested in the high street at a time when other retailers have gone online or closed down altogether.

 

The traditional opportunities to asset-strip Hornby are limited as a lot of this has already been done. Move to a cheaper part of the country. Done. Sell and lease back your HQ. Done. Offshore manufacturing. Done. Offshore distribution. Done. 

 

What opportunities are left? Maybe the big opportunity is to focus on Warlord Games and introduce specialist Warlord areas into Game and Frasers. Sell Oxford Diecast back to the founder and decide on the other brands once their performance is better understood.

 

[ruggedpeak]

37 minutes ago, Legend said:

Not so sure it’s low margin Tony, or low growth come to that. While Hornbys share of market  probably hasn’t grown much if at all , there are lots of other companies that have entered the market .  Agreed that compared to his other commodities , sportswear etc , this is small beer . I really do wonder why he is dabbling with this , unless it’s to get into the actual profitability of the various segments , split them up and sell off . Might be a vehicle for Phoenix to get out of ownership of the overall group , by realising value splitting them up . 

 

 

I don't disagree on the growth in the short term but I question the longevity of that growth given underlying demographics and the economic situation. The likes of Accura are wise to sell to order.

 

The margins are low in comparison to clothing and other high street products. If the margins were competitive and the growth was there the supermarket chains and other high street retailers would be stocking Hornby et al - they will parasitise anything they can make money on at scale.

 

I agree that Phoenix may be hopeful of an exit since I can't see much reason for them to hang onto Hornby as it does not generate cash or capital growth, indeed I suspect their plan has been the hope that someone would buy Hornby for its IP and brands as part of a toy sector consolidation or similar.

[AY Mod]

1 hour ago, BachelorBoy said:

 

I suspect TT will be under the microscope. It's not too late to abandon it.

 

 

Give your hobbyhorse a rest please.

[1andrew1]

1 hour ago, BachelorBoy said:

 

I suspect TT will be under the microscope. It's not too late to abandon it.

 

Alternatively, push TT train sets cheaply through Frasers and Game. That way, future modellers are in a scale dominated by Hornby rather than selling OO train sets where Hornby's market share for OO is a lot lower.

 

If a train set buyer wanted to expand their set, sticking with the same gauge is highly probable. Right now, TT is Hornby except for a few Peco wagons. The same is not true for OO where the train set owner's next purchase could come from Dapol, Bachmann and many more manufacturers.

 

Both Frasers and Hornby would conceivably gain from such an arrangement. 

Edited March 21 by 1andrew1

[BachelorBoy]

1 hour ago, 1andrew1 said:

The traditional opportunities to asset-strip Hornby are limited as a lot of this has already been done. Move to a cheaper part of the country. Done. Sell and lease back your HQ. Done. Offshore manufacturing. Done. Offshore distribution. Done. 

 

What opportunities are left? Maybe the big opportunity is to focus on Warlord Games and introduce specialist Warlord areas into Game and Frasers. Sell Oxford Diecast back to the founder and decide on the other brands once their performance is better understood.

 

 

Existing Hornby managers seem prone to gaffes. It might be that the company culture is unreformable.

 

The biggest opportunity is to fire everybody and sell the brands. 

 

 

 

 

 

 

 

[adb968008]

3 hours ago, micklner said:

Perhaps his interest is totally innocent.

 

All he wants to really do is run his ancient Triang Train set round and round in everdecreasing circles with  the Wagons full of lovely Gold Bars !! It brings back happy memories of  his childhood!!. I wonder where the Gold Bars came from ????.
🤐🫢😇

 

maybe he’s mates with Jools, Pete or Rod and theyve convinced him to build a layout in one of his stores next year ?

 

He’s  had enough waiting for an Electrostar and sent his consultants in to go look for it ?

[adb968008]

Hmm, High street fashion…

 

Corgi Jumper

Lima Tracksuit

Hornby jeans

Airfix trainers

strong underwear, yes you need designer Rivarossi Y fronts to keep those budgies in and of course matching Electrotren sunglasses 

 

Bassett lowke hoodies for the dark and scary types

 

Edited March 21 by adb968008

[BachelorBoy]

On 14/03/2024 at 01:06, 1andrew1 said:

And let's not forget that the original Hornby brand owner diversified into model cars and trains from its primary business of Meccano.

 

That is true, but it was a long time ago. More than a century ago for trains, and ninety years for model cars. 

[Johan DC]

18 minutes ago, BachelorBoy said:

 

 

The biggest opportunity is to fire everybody and sell the brands. 

 

 

 

 

 

 

 

Tell me you have no idea what you’re talking about, without telling me you have no idea what you’re talking about.

 

i don’t claim to know it all, but I have enough experience in both operations and HR to tell you that firing everybody (and the kitchen sink) only leads to disasters. 

[The Stationmaster]

1 hour ago, 1andrew1 said:

Apparently, the share price rose 7% on the announcement before falling back.

 

I wasn't a fan of Ashley over his ownership of Newcastle but he has invested in the high street at a time when other retailers have gone online or closed down altogether.

 

The traditional opportunities to asset-strip Hornby are limited as a lot of this has already been done. Move to a cheaper part of the country. Done. Sell and lease back your HQ. Done. Offshore manufacturing. Done. Offshore distribution. Done. 

 

What opportunities are left? Maybe the big opportunity is to focus on Warlord Games and introduce specialist Warlord areas into Game and Frasers. Sell Oxford Diecast back to the founder and decide on the other brands once their performance is better understood.

 

There is plenty to sell in Hornby.  The question is what of it would produce much on disposal and does the value of the brands (other than Hornby) outweigh the present level of return.  I would be amazed if Olly Raeburn hasn't already been looking at that as he gets past the initial fire-fighting stage in managing the business and when you link Ashley's name to 'strategy' it surely must mean the same.

 

There is I think already quite a lot there which might be ripe for disposal - Oxford is an obvious one as it was a profitable business although it could also have some value as a brand.  Corgi will have more value - as a well known brand - than Oxford and I bet its financials will be under close scrutiny.   Various of teh continental model railway brands might have calue and their names are marketable but with numerous financial troubles and failures among continental brands are they really saleable at a price offering a decent return?  The really valuable brands are 'the big three' - Hornby, Airfix, and Scalextric - but would it be better to sell them or to licence them out and thus keep some return coming into a much smaller Company with strictly controlled residual running costs?

 

Overall I still think there will be an impact on share price and Ashley interest when the next results are made known in, probably, late April.  However it is likely that Ashley already has access to those numbers albeit with a week or two to go before they are finalised.  Don't forget that the current bid share price is not far short of 100% higher than it was in the days following the release of the most recent Trading Statement.  Either Olly Raeburn has achieved a miracle transformation or the market is currently over-valuing the company as far as its financial situation is concerned and the share price is more in hope than potential anticipation.

[adb968008]

I asked chatgpt why Mike Ashley would buy Hornby…

 

Quote

Mike Ashley, the British billionaire and founder of Sports Direct, is known for his investments in various companies across different sectors. However, without specific information available post-January 2022, it's speculative to suggest why he might buy Hornby, a model railway company.

However, here are some potential reasons why a high-profile investor like Mike Ashley might be interested in acquiring a company like Hornby:

 

Diversification: Mike Ashley might see Hornby as a way to diversify his investment portfolio. Adding a company in the model railway industry could provide exposure to a different market segment than his other holdings.

 

Brand Potential: Hornby is a well-established brand with a loyal customer base. Ashley might see potential in revitalizing the brand, expanding its product lines, or leveraging its brand recognition for further business opportunities.

 

Synergies: There could be synergies between Hornby and Ashley's other businesses. For instance, there might be opportunities for cross-promotion or leveraging Sports Direct's distribution network to expand Hornby's reach.

 

Long-Term Investment: Ashley might believe in the long-term potential of the model railway industry or have a strategic vision for Hornby's future growth.

 

Asset Value: Hornby might have valuable assets such as intellectual property, manufacturing facilities, or distribution channels that Ashley sees as undervalued or underutilized.

 

Financial Reasons: There could be financial motivations behind the acquisition, such as undervaluation of Hornby's stock, potential for cost-cutting measures, or expectations of increased profitability under new management.

 

Without specific statements from Mike Ashley or insider knowledge about his intentions, it's challenging to pinpoint the exact reasons why he might buy Hornby. However, these are some general factors that could influence such a decision.

 

Edited March 21 by adb968008

[AY Mod]

30 minutes ago, BachelorBoy said:

 

Existing Hornby managers seem prone to gaffes. It might be that the company culture is unreformable.

 

The biggest opportunity is to fire everybody and sell the brands. 

 

 

Right; had enough of this.

[teletougos]

Thanks to (most) everyone for the comments. 

 

It's pretty much as I suspected,  except that I can't figure out what the Hornby name would be worth shorn of any links to toy trains.

 

I mean that's about all the name is known for.

[wombatofludham]

Thinking seriously and speculating for a moment, looking at his past business model, if he does a deep dive into the Hornby group to see what are the profitable bits and which need to be sold off, with possibly a view to taking a bigger stake (speculation), I could see him making a bid for Airfix who do seem to be doing well, I could see him him keeping Hornby but focussing on the cheap to make but good selling "train set" market (possibly including TT if it is selling as well as people claim) whilst quietly dropping or selling off the more expensive to assemble (but higher priced) detailed model range (I'd be surprised if they fit his buy cheap, sell high philosophy but no doubt the models could find a new home if the toolings can be sold off, depending on the usual who owns the toolings issues over in China) which would leave Corgi, which I suspect is possibly the weakest of the three big UK brands, and Oxford which as others have speculated could end up back with Taff's family (who might make a play for Corgi as well).  I'm not sure where the Continental brands would sit if he adopts a buy cheap sell high philosophy as the brands seem to have the same mix of cheap to produce legacy models and some high detail, presumably expensive to produce models like Hornby.  Brands like Lima and Jouef have resonance in their respective home markets for train sets and the like (or so it seems) but I wonder how big their markets are for train set sales?

I'm probably wrong but I can't help thinking how he has worked his other brands and interests might lead to this scenario.  Clearly though Mr Ashley being given the keys to the accounts and business details as a "consultant" must be more than just taking him up on a free offer of his business experience and changes will probably be coming.  In fact if we hear of Mr Ashley crying "I'm out" then I suspect we might read into that even he can't make a go of the business which probably would make the majority shareholder even more concerned.

[wombatofludham]

20 minutes ago, teletougos said:

Thanks to (most) everyone for the comments. 

 

It's pretty much as I suspected,  except that I can't figure out what the Hornby name would be worth shorn of any links to toy trains.

 

I mean that's about all the name is known for.

I could see someone like Kader group buying up the name and some of the product range to launch a budget, junior range with an emphasis on train sets and cheap robust but attractive toy/model crossovers to capture the entry level/budget modeller market with brand recognition that Bachmann probably doesn't have, leaving Bachmann to concentrate on the high end market.