Mike Ashley should be able to squeeze some profit out of HMV, according to one City analyst who reckons the bankrupt CDs and DVDs seller has been “inefficiently” managed.
Reports over the weekend claimed the billionaire owner of Sports Direct International PLC (LON:SPD) has made an offer to rescue HMV, which fell into administration for the second time in six years in December.
READ: Mike Ashley in talks to rescue HMV
Back then, the chain’s owner, restructuring firm Hilco, said the music retailer had been hit by a “tsunami” of challenges in recent months, none greater than the growing trend of online streaming.
Despite the headwinds, Liberum retail analyst Wayne Brown reckons Ashley can make a success of HMV, as well as the other retailers in his portfolio, which also includes Debenhams PLC (LON:DEB), Game Digital PLC (LON:GMD) and the recently-acquired House of Fraser.
“He’s buying the assets on the cheap and the people that shop at HMV are likely to be the same people who shop at Game and Sports Direct,” said Brown.
“These are big well-known brands that keep the high street alive and feed off each other. They’ve been run inefficiently and there are cost savings to be had.”
Cross-selling opportunities
He added that there will be lots of cross-selling opportunities, as there are natural synergies between Game and HMV, while even Sports Direct would be a sensible home for video games, especially the big sports titles such as FIFA and F1.
“It gives the youngsters an opportunity to walk through the stores to get to the gaming area. At the same time, you’re going to become a re-seller of a host of other entertainment products. I see the fit. I really see the fit.”
READ: Ashley calls on government support for high street
Some commentators have speculated that Ashley might be building up his retail empire on the cheap in anticipation of future tax cuts and lower business rates.
“There’s no doubt about this that the business rates regime, the tax regime and the regulation and legislation is inhibiting the high street retailers,” explained Brown.
“But what you can try to do with the government and what you can actually successfully implement with the government are two very different things.”
Better things to do
Another analyst, Nick Bubb, doesn’t share Brown’s enthusiasm for the HMV acquisition, though. He can see a few short-term benefits but reckons “Mad Mike” has other, more important things, to be focusing on.
“Mike is presumably interested in the fact that the big entertainment suppliers will be offering margin and working capital support to maintain such a big chunk of the UK market, so a deal may look low-risk in the short term.
“But HMV is hardly a licence to print money, given the way the physical entertainment markets are collapsing, and it goes without saying that Mike ought to have better things to do.”