Ash­ley: tax online sales 20pc and jail those who flout it

Key­stone Law’s clever busi­ness model is driv­ing rapid growth, so the shares’ high val­u­a­tion could be de­cep­tive, says Russ Mould

The Daily Telegraph - Business - - Front Page - By Ju­lia Brad­shaw

RE­TAIL ty­coon Mike Ash­ley wants to see a 20pc tax levied on online sales and prison sen­tences for ex­ec­u­tives who con­sis­tently “fid­dle” their way out of pay­ing the levy, as part of his plan to save the coun­try’s “dy­ing” high streets.

He said any com­pa­nies with more than 20pc of their sales gen­er­ated online should have to pay the tax, which would give lo­cal coun­cils more money to help en­cour­age peo­ple to shop close to home, such as of­fer­ing free park­ing.

“Why are so many stores clos­ing on the high street? It’s not the high street’s fault it’s dy­ing, we all know the an­swer: it’s the in­ter­net, the in­ter­net is killing the high street and I would know be­cause I have £400m of in­ter­net busi­ness,” Mr Ash­ley, the founder of Sports Di­rect, told a com­mit­tee of MPs.

He said 20pc of the high street was not sav­able, 60pc was in crit­i­cal con­di­tion, while the top 20pc of stores in up­mar­ket places such as Ox­ford Street and Bond Street were not rel­e­vant.

“The vast ma­jor­ity of the high street, there­fore has died … The only thing you can do is give them a mas­sive elec­tric shock, it’s very sim­ple … you have to im­me­di­ately tax the in­ter­net, not just the pure­play in­ter­net, but ev­ery­one, for the good of all.”

He said a tax would re­sult in stores like Sports Di­rect go­ing on an “open­ing spree” be­cause it would “make per­fect busi­ness sense for me to cross-sub­sidise those stores to keep them open”.

An­other mea­sure Mr Ash­ley sug­gested was a five-year busi­ness rate hol­i­day, on the con­di­tion that shops matched ev­ery pound of free rates with a pound of in­vest­ment in shops.

He said coun­cils, re­tail­ers, land­lords and share­hold­ers needed to agree to make cut­backs. “It would be no free ride for the re­tailer, the land­lord would have to agree for a re­duc­tion in rent, and you would need a pub­lic com­pany to agree a re­duc­tion in div­i­dends. So ev­ery­one must put in,” he said. “I know it sounds very so­cial­ist, but ev­ery­one needs to come to­gether. I am not the crazy cap­i­tal­ist ev­ery­one thinks I am.”

When asked by MPs how such a sys­tem would be po­liced, Mr Ash­ley said harsher pun­ish­ments for re­peat of­fend­ers was the only way to stop com­pa­nies us­ing ac­coun­tants to “fid­dle” the num­bers, suggest­ing a £10 fine for ev­ery pound. He added: “In cases of per­pet­ual abuse, bosses should get cus­to­dial sen­tences and that should ex­tend to non-ex­ec­u­tives as well be­cause peo­ple move around on the merry-gor­ound … so you get this short-ter­mism that makes it im­pos­si­ble for a group like this [point­ing to MPs] to ac­tu­ally make a dif­fer­ence on the high street.”

Mr Ash­ley, who has a 29pc stake in Deben­hams and bought House of Fraser from ad­min­is­tra­tors in Au­gust, said that depart­ment stores could mod­ernise by con­vert­ing some of their space into ar­eas for en­ter­tain­ment, such as gam­ing, or res­i­den­tial use.

He warned MPs that if rad­i­cal ac­tion was not taken, the high street would not sur­vive to 2030. He be­gan the ses­sion of the hous­ing, com­mu­ni­ties and lo­cal gov­ern­ment com­mit­tee fend­ing off crit­i­cism over the way he res­cued House of Fraser. He was ac­cused of “tak­ing all the as­sets and none of the re­spon­si­bil­i­ties”, but said this was a “far from fair de­scrip­tion”.

“House of Fraser was trad­ing while in­sol­vent for a very long time be­fore Sports Di­rect stepped up and saved it.”

He also de­fended use of zero-hours con­tracts, say­ing “the vast ma­jor­ity” of Sports Di­rect em­ploy­ees liked them.

Later, Mr Ash­ley told Sky News he wants to sell New­cas­tle United be­fore the Jan­uary trans­fer win­dow next year.

IF YOU are in agree­ment with Dick the Butcher’s plan from Shake­speare’s

Henry VI, Part II that “the first thing we do, let’s kill all the lawyers”, please look away now. But any­one pre­pared to think in purely prac­ti­cal terms when it comes to their port­fo­lio might like to draw up a brief on Key­stone Law.

The le­gal sec­tor has been a hot­bed of stock mar­ket ac­tiv­ity this year, with Bur­ford Cap­i­tal still thriv­ing (to the ben­e­fit of its 6.125pc 2024 bonds, which this col­umn con­tin­ues to cher­ish), the flota­tions of Anexo and Knights and a ma­jor ac­qui­si­tion by Gor­don Dadds among the high­lights.

Key­stone Law’s in­terim re­sults in Septem­ber were also wor­thy of note. Sales rose by 30pc, op­er­at­ing profit gained 42pc and a 2.5p maiden in­terim dividend was paid. It added 31 lawyers to its books as its rapid

growth and plat­form­based model saw ap­pli­cants flock to join this po­ten­tial in­dus­try dis­rupter.

The plat­form makes Key­stone al­most a “vir­tual” law firm, as lawyers can work more flex­i­bly with­out hav­ing to trudge into an of­fice, and do so with the sup­port of Key­stone’s le­gal net­work and IT and se­cu­rity frame­work. The net­worked model also al­lows lawyers to re­fer work to col­leagues and sup­port other cases and projects within the firm. In­creased staff num­bers bode well for fu­ture in­creases in sales, earn­ings and the dividend, which is also sup­ported by net cash on the bal­ance sheet, the re­sult of Key­stone us­ing some of the pro­ceeds of its flota­tion in Novem­ber 2017 to pay off debts.

Key­stone is prob­a­bly best suited to mo­men­tum and growth seek­ers, es­pe­cially as it trades on a full-look­ing price-to-earn­ings ra­tio of 33.8 for the year to Jan­uary. The risk is that any mi­nor profit dis­ap­point­ment could hit the shares hard, as that sort of rat­ing leaves little by way of safety margin, but there is po­ten­tial for gain if Key­stone main­tains its rapid prof­its growth. If it does, that p/e ra­tio of 33 will be de­cep­tive as it would start to drop pretty rapidly were the share price even merely to stand still.

Questor says: buy

Ticker: KEYS

Share price at close: 381p

Up­date: Coats

Since our ini­tial look at in­dus­trial threads maker Coats last year, share­hold­ers have reeled in a 10pc

cap­i­tal gain, while the FTSE All Share has fallen by 5pc, and banked div­i­dends of more than a penny a share for good mea­sure.

Last month’s third-quar­ter trad­ing up­date sug­gested that the busi­ness should re­ward fur­ther pa­tient sup­port, given its strong com­pet­i­tive po­si­tion and lofty re­turns on cap­i­tal.

Weak­ness in emerg­ing mar­ket cur­ren­cies such as the Turk­ish lira held back sales on a re­ported ba­sis but they rose by 3pc on an un­der­ly­ing ba­sis, with the key In­dus­tri­als seg­ment lead­ing the way with a 9pc in­crease. The com­pany’s “con­nect­ing for growth” cost-cutting plan should help to sup­port prof­its and its pro­gres­sive dividend pol­icy come the full-year re­sults in Fe­bru­ary, even as Coats con­tin­ues to invest and in­no­vate.

High re­turns on cap­i­tal sug­gest that a for­ward p/e ra­tio of barely 14 still rep­re­sents good long-term value.

Questor says: hold

Ticker: COA

Share price at close: 80.9p

Up­date: Trufin

Our anal­y­sis in May of niche lender and fin­tech play Trufin is off to a slow start, as the shares are around 5pc lower. But last week’s state­ment that the com­pany is on track to re­ceive reg­u­la­tory clear­ance for its bank­ing li­cence in the first quar­ter of 2019 is highly en­cour­ag­ing.

This would lower Trufin’s cost of debt and boost the prof­itabil­ity of its loan book, which, at fore­court lender Distri­bu­tion Fi­nance Cap­i­tal (DFC), al­ready stands at £100m, helped by ma­jor banks’ avoid­ance of this area.

New client growth at DFC looks promis­ing too, to sug­gest that loan book growth has plenty of scope to ac­cel­er­ate fur­ther. Loss-mak­ing small caps are not suitable for all in­vestors but risk-tol­er­ant port­fo­lio builders will wel­come the pos­i­tive news.

Questor says:

Ticker: TRU

Share price at close: 203p

Mike Ash­ley, the Sports Di­rect ty­coon, goes through se­cu­rity be­fore tes­ti­fy­ing at the House of Com­mons

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