Boohoo Group Plc – Expects good growth in revenue and adjusted EBITDA margin

Boohoo Group PLC (LON: BOO) is a FTSE AIM 100 listed Online Fashion Retailing Company. The Company was founded in 2006 and has grown rapidly in the UK and internationally.

Rationale for Valuation – Hold at GBX 262.34

• The Company has decent fundamental metrics as it has maintained a Gross margin above 50% for the last three years and a ROE above 10% for the last two years.
• The Company recorded a lower debt-equity ratio of 0.03x (H1 FY21) against the industry median, which reflects that BOO is less leveraged as compared to the industry.
• In the last year, the Company has delivered a sparkling return of ~25%, which is higher as compared to the FTSE AIM 100 Index.
• From the technical standpoint, 14-day RSI stood at ~33.35, which is supporting the upside movement.

Key Risks

• The Company can face an additional cost-pressure for resolving supply chain malpractice as 60% of their products get manufactured in overseas markets.
• Moreover, such media allegations can ruin the brand image and thus, can impact the future growth potential through reputational damage.
• Due to the Covid-19 pandemic, the Company’s operational performance could be impacted due to disruption in the supply chain.

Recent News

On 27 October 2020, the Company announced that the Trustee of the Group's Employee Benefit Trust (EBT) had purchased 5 million ordinary shares of 1 pence each. Hence, the total average net price was 274.02 pence per share.

On 19 October 2020, the Company stated that PwC remains its auditor at present, and it is not taking part in the competitive tender process for the Group’s audit business recently begun by the online fashion retailer’s Audit Committee.

Financial Highlights (for the six months ended 31 August 2020 (H1 FY21), as on 31 August 2020)

(Source: Company Website)

• Led by strong revenue growth across all brands and geographies, the revenue surged by 45% year-on-year.
• The Company acquired 34% of a remaining minority shareholding in PrettyLittleThing and successfully acquired and integrated Warehouse and Oasis brands.
• It has healthy customer KPI’s, reflecting improvement in the share of wallet.
• BOO successfully placed £198 million to support future acquisitions.
• The Company witnessed a robust balance sheet with net cash of £344.9 million (, healthy operating cash flow of £147.2 million and net cash flow of £99.5 million.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (NTM) (Illustrative)

Conclusion

The Company continues to maintain a highly positive outlook, with strong growth in the UK and international market. For FY21, the Company expects revenue growth to be in the range of 28% to 32%, with adjusted EBITDA margin for the year to 28 February 2021 at around 10%. The Company has made a good start to H2 FY21, with momentum continuing into September 2020. Capital expenditure is expected to be £80 million to £100 million and to be higher than previously anticipated. The Company’s expansion will support the growth of the business and improve efficiency. However, the PwC is not participating in a competitive tender process, as stated on 19 October 2020 announcement. Meanwhile, the Company has shown strong financial performance in H1 FY21. BOO expects market uncertainty to remain in H2 FY21 but has a strong balance sheet with higher net cash and healthy operating cash flow to tackle the uncertainties. The stock made a 52-week low and high of GBX 133.10 and GBX 433.50, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance on Boohoo Group at the current price of GBX 262.34 (as on 29 October 2020, before the market close at 8:09 AM GMT) and will recommend fresh buying at the right time.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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