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06 May 2021
Crying out for an upgrade (and 15 Questions)
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Crying out for an upgrade (and 15 Questions)
boohoo group Plc (BOO:LON) | 33.9 -0.1 (-0.6%) | Mkt Cap: 430.0m
- Published:
06 May 2021 -
Author:
Okines Warwick WO | Muir-Sands Charlie CMS -
Pages:
9
Small FY21 beat; conservative FY22 guidance
4Q sales growth beat consensus by 14ppt, 2H adj EBITDA was 3% ahead with full year adj EBITDA up 37% yoy. FY Feb-22 guidance is in line with sell-side expectations though market reaction suggests behind the buyside. Guidance may prove conservative given qualitative comments on recent trends, but much depends on unlocking of consumers'' social freedoms though FY22. The Agenda 4 Change program is making good progress, albeit there was little new today. We continue to see scope for ESG rehabilitation, re-rating and shares to Outperform.
Strong customer metrics confirmed
The full year adj EBITDA margin fell 20bps with 300bps headwind from international freight, and dilution from new brands, being largely offset by lower returns rates (130bps), admin leverage and improved marketing efficiency. This aided customer acquisition costs which remained market-leading at GBP41/net add, albeit deteriorated since H1. We continue to see Boohoo as having the best customer payback metrics of the pure-plays too: 1.6 years on our harmonised definition. See our recently updated benchmarking in Exane Explains: online clothing retail for peer metrics.
FY Feb-22 guidance has scope to prove conservative
20% organic sales growth and 5ppt contribution from new brands both look conservative. For example Karen Millen and Coast are 100% ahead of management''s ''1x purchase price'' budget. With just GBP55m paid for Debenhams, versus pre-pandemic turnover (inc. stores) of GBP1.7bn, we see significant upside risk. 9.5-10% group adj EBITDA margins guided for FY22 (vs. FY21 10.0%) are also reassuring given dilutive impact of ramping this and the Arcadia brands back up.
Scope for re-rating remains. Reiterate Outperform rating with 41% upside
Operating assumptions are unchanged but higher SBC drives a trim to EPS. Boohoo trades on a lower EV/Sales to Zalando despite faster growth and 2x profitability: we think entirely explained by an...