Some people just don’t like playing by the rules. Mike Ashley, the City’s favourite CEO, has gate-crashed Blacks Leisure’s fund-raising by re-acquiring his old 28% stake in the Outdoor market leader. The Placing was to accelerate their ‘Recovery’ plan following the eventual restructuring of their loss-making Boardwear division and re-negotiation of lease costs for their historically over-rented estate.

“What on earth is he up to?” everyone asks. Could it be as simple as Blacks represents one of the cheapest Retail share opportunities of a generation? Turnover is roughly £250m, whilst the market capitalisation is £23m and debt is £30m (pre the proposed c.£20m raise); an approximate Enterprise Value of £53m driving an EV/Sales ratio of 0.2x. Although margins have been over 10% in the past, a mere return to 4% margins (very achievable with the lower rented estate, but even more achievable with the central, buying and other synergies possible as part of Sports Direct group) could drive stock-market valuations to an EV/Sales multiple of 0.4x (the Clothing sector average).

Given net debt would fall due to the improved profitability (lets estimate £15m) and sales don’t  improve,  the market capitalisation should rise to £85m. A prospective return of 369%. Risks? Yes. Facilities are £35m so very little room for ‘double-dips’, incompetence or bad luck. Compensated for by  upside? You bet. Mad maths? Blacks was valued at £236m in 2006 and £110m in 2000. Sports Direct is valued on an EV/Sales of 0.7x, makes margins of c.7%. 

Oh and by the way Sports Direct appears to be trading better of late. If Ashley bid 100% premium to the current share price, he would only need to find £30m which he might be able to finance from existing Sports Direct facilities....