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We note this morning’s announcement from Boohoo Group strongly refuting several allegations made in a short-selling note published yesterday afternoon. In our opinion arguments made in the short selling note are flawed and do not disclose any new or unexpected information about the Group. The unprecedented market backdrop resulting from the COVID-19 crisis has only acted to highlight the strengths of Boohoo’s agile, pure play, e-commerce model and we see current share price weakness as offering an attractive entry point.
FY20 results report EPS slightly ahead (4%) of our previous forecast. Net debt (pre-IFRS 16) was also slightly better than expected at £6.9m (N+1SE: £7.5m). The Group had a very strong start to FY21, achieving PBT of £6.0m in Q1 and trading is expected to be strongly ahead of budget in May. The order book for June is also encouraging. This is an impressive result against the significant challenges posed by COVID-19 for the aviation industry. Performance in H2 will likely depend upon the recovery in activity levels in Private Jets and Safety & Security, but Air Partner is already seeing some signs of recovery here. We believe the Group is well placed to achieve a strong full year result given the diversity of its model and the strength of the balance sheet.
Companies: Air Partner
Boohoo Group has announced the acquisition of the remaining 34% of shares in prettylittlething.com (‘PLT’).
- Terms of the deal: Boohoo Group has acquired the remaining 34% of shares in PLT for initial consideration of £269.8m, comprising cash consideration of £161.9m and share consideration of £108.0 including £54m of share consideration subject to an 18 month lock-up, £54m of share consideration subject to a 24 month lock-up payable on completion. A further £54.0m of contingent consideration is payable if the Group’s share price averages 491p (+46.7% on last night’s closing price) over a six-month period between completion and 14 March 2024. PLTs management team will remain in the Group, with the structure of the share consideration providing strong alignment of management interests with the wider Group shareholder base.
Unsurprisingly, the limited business progression in H1 19/20 and the pandemic outbreak towards the end of the year have resulted in a significant FY profit contraction.
However, the unprecedented pandemic crisis seems to be dragging all the industry to the same starting line, in terms of market transformation. In particular, after the group showed a better than expected cash position after additional RCF and CCFF and substantial cost-savings, this gives new hope to the market.
Companies: Marks And Spencer Group
After launching a £1bn recapitalisation by way of a rights issue at a price with a heavy discount, the UK-based restaurant and (the largest) hospitality group, Whitbread, saw its share price plummet by 13%. The market movement reflects investors’ concern about the uncertain duration of Whitbread’s business downturn.
Whitbread was on our list of issuers likely to be wrongfooted by the crisis the day before the rights issue announcement.
In FY20, prior to COVID-19, management delivered on its four key proof points, including growing group EBITDA and membership at Roadside. The business model is proving resilient during COVID-19 and we have reduced our FY21 EBITDA forecast by only 7% since the outbreak began – much less than most.
Companies: AA Plc
2019 finals are a smidgen ahead at the EBITDA level. The company executed well in expanding the estate by 10% and collaboration with food aggregator Pyszene.pl (takeaway.com) has proved positive. DPP finished the year with £3.5m of net-cash and importantly, management today signal that this provides sufficient liquidity on a 12m view. COVID-19 to date has had relatively little impact with sales holding up robustly. A strong online presence and a delivery model means the business has continued to operate through the lockdown. Recent easing of restrictions to allow restaurants to open and some cost deflation are welcome developments also. New CEO, Iwona Olbrys, has proven F&C experience, most recently at Telepizza Poland which moved into profitability under her leadership. Whilst no major strategic review type commentary today, there is reference to self-help initiatives to drive the top line, lower costs and enhance the online platform. With little 2020 visibility management has removed financial guidance. N+1 Singer currently has no formal forecasts in the market and will initiate coverage in due course Overall, looking through the current uncertainty, we feel that with a proven new CEO at the helm and an online focused business model, DPP should ultimately reward investors with a move into profitability and value creation.
Companies: DP Poland
Following last week’s trading update, in this note we revisit the progress Inchcape has made, along with the structural benefits it has gained, in focusing its business on its distribution model. Whilst there is no doubt the Group faces pressures at present, we believe it has sufficient liquidity to withstand this crisis within its current banking facilities and see scope for further significant cost savings and efficiencies that should help mitigate current pressures, which we expect hear more on at the H1 results in July.
The travel bans and quarantines due to COVID-19 have had a significant impact on PPHE since mid-March and are likely to continue to do so. We now expect a deeper and longer downturn than previously and a slower recovery, so we reduce our forecasts for occupancy for FY20, while holding our prior EBITDA margin assumptions reflecting cost cutting and a high level of government support on key costs. We downgrade FY20 revenue by c 32% and EBITDA by c 29%. The shares are trading at a c 54% discount to the last-quoted EPRA NAV of 2,546p per share.
Companies: PPHE Hotel Group
FY20 year-end trading update
Companies: Dart Group
Inchcape has announced a trading update indicating impact of COVID-19 hit most markets in April, but we note the Group is now open in 25 markets vs. 14 on 7 April. Balance sheet liquidity has improved through the eligibility of the CCFF scheme. A through review of costs will now take place, and we are likely to get more colour on this at H1 results.
Boohoo Group has announced an upgrade to FY20 guidance on the back of continued strong trading momentum over its second quarter ended 31 August 2019. Strong revenue growth across the Group’s key brands (boohoo, boohooMAN, PrettyLittleThing and Nasty Gal) confirms the Group’s multibrand strategy is bearing fruit, with fears around potential cannibalisation firmly allayed. Top-line outperformance is driving operating leverage at Group level, enabling it to maintain full year EBITDA margin guidance at 10% despite the ongoing investment being made in the three brands acquired in the first half. Today’s announcement represents an impressive tenth consecutive upgrade in management guidance over the last three years, as the Group continues to outperform the market and consolidate its position as a leading multi-brand fashion ecommerce platform.
Loungers continues to outperform, delivering the scarce trinity of LFL sales growth (5.4%), unit growth (10 openings) and margin growth (40bps). This drove a 22% increase in Revenues and 26% increase in EBITDA in the first half of FY20E.
Joules has extended its RCF by £15m, meaning that total funding, including the recent equity raise, now gives current available headroom of £43.1m. Encouragingly, spot net debt of £6.9m is better than management’s expectation, helped by a stronger online performance than envisaged when the lockdown first began. The group’s healthy financial position and the strength of the Joules brand give us confidence in its ability to navigate through the near-term uncertainty. The shares have fallen 63% the last 3-months, and trade on a Dec-22E PE of 6x (on our old estimates which may remain under review). We reinstate our BUY.
Companies: Joules Group
H1 (to end of March) adj. PBT of £1.2m is in line amidst difficult trading. COVID-19 and closing all stores has seen April’s sales decline 80% y/y. There are promising signs with online sales 3x pre-COVID levels and management is being very pro-active in adapting and re-opening stores, such that the entire estate could be open on a controlled entry basis by the end of June. Liquidity at c.£14m remains comfortable and should rise by £10m in June as additional CLBILS funding becomes available. We move to BUY and present a scenario for FY20E in this note. We will publish formal forecasts when Topps next reports in early July.
Companies: Topps Tiles