Boohoo Group PLC

Boohoo Group PLC (LON: BOO) is an 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 – SPECULATIVE BUY at GBX 95.74

• Network Expansion: Boohoo has built a distribution network capable of generating over £5 billion of net sales. It also expects to open its first US distribution centre in FY23.
• Guidance: For FY22, net sales growth is now expected to be between 12% to 14%, against the previously expected 20% to 25% growth. Adjacently, the FY22 EBITDA margin is now expected to be 6% to 7%.
• Strong Balance Sheet: Currently, Boohoo holds liquidity of over £170 million with net cash of £70 million.
• Technical Indicator: From a technical standpoint, 14-day RSI (~32.07) is in the oversold territory, while the stock price is hovering close to the lower standard deviation of the Bollinger Bands.
• Undervalued Multiples: As per valuation metrics, EV/Sales, Price/Book, Price/Cash Flow, and Price/Earnings multiples are currently lower than the Median of the Consumer Cyclicals sector.

Key Risks

• Inflation Concern: Due to the inflationary pressure, the Bank of England increased the Bank Rate by 25 basis points to 0.50%. It can keep the equity market under pressure amid the rising US Dollar index.
• Emerging Risk: There is constant pressure related to cost inflation, supply chain barriers, and subdued demand outlook.

Trading Update (for the three months to 30 November 2021, as of 16 December 2021)

 (Source: Company Website)

• Sales: For the above-mentioned period, sales jumped 28% year-on-year, while the net sales were also up by 10% year-on-year.
• Demand: It witnessed an exception demand on the back of its leading proposition across products and price.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

Conclusion 

Boohoo reported a significant jump in top-line and bottom-line numbers in H1 FY21. It also continued to witness a solid demand in Q3 FY21.

It also continued to gain market share and maintained a compelling consumer proposition with several acquisitions, which shall cement its position as a leader in global fashion e-commerce. It is planning to strengthen its proposition with the opening of a new distribution center in North America in 2023. The stock made a 52 week High and Low of GBX 378.90 and GBX 95.28, respectively.

Based on favorable market drivers, increased active customers, prospects of recent acquisitions, and supported by the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Boohoo Group PLC at the current market price of GBX 95.74 (as of 7 February 2022, at 8:30 AM GMT), with lower double-digit upside potential based 21.34x Price/Earnings (approx.) on FY22E Earnings Per Share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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