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.

On 10 March 2022, Boohoo expects to release its next trading update.

Rationale for Valuation – SPECULATIVE BUY at GBX 66.54

• Update on Russian Sales: Although Boohoo has suspended sales in Russia and closed its trading websites, its sales in Russia are not significant, representing merely around 0.1% of total revenues.
• Strong Platform for Growth: Boohoo reported a significant jump in top-line and bottom-line numbers in H1 FY22. It also continued to witness a solid demand in Q3 FY22. Moreover, it reported a gain in 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.
• 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%.
• Technical Indicator: From a technical standpoint, 14-day RSI (~24.10) 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

• Gloomy Outlook: The year 2022 is expected to be the year of inflation, Central Bank tightening, and wage pressure. All these factors can hurt the corporate profits and equity markets.
• 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)

*Peers: Moonpig Group PLC, Ted Baker PLC, B&M European Value Retail SA, and Dunelm Group PLC

*All selected peers are LSE-listed Companies from the Retail sector.  

Conclusion 

Boohoo holds liquidity of over £170 million with net cash of £70 million. Moreover, it has built a distribution network capable of generating over £5 billion of net sales. It also expects to open its first US distribution center in FY23. The stock made a 52 week High and Low of GBX 364.90 and GBX 63.32, 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 66.54 (as of 8 February 2022, at 12:10 PM GMT), with lower double-digit upside potential based 15.03x 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.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.