Boohoo Group emerging in a far stronger position versus two years ago says Zeus

¨ Financial performance: Boohoo Group plc (LON:BOO) revenue of £1,982.8m is +13.6% YOY and +41.3% versus FY20, representing significant market share gains versus global apparel markets that remain below pre-pandemic levels (UK: +27.3% versus market -3%, US +3.8% versus market -9%). The UK delivered a standout performance +27.3% YOY with strong growth across both established and new brands. Demand in international markets has been impacted by extended delivery times due to constrained airfreight capacity, a headwind that we see as transitory, and that will be in part resolved by the launch of the Group’s US distribution centre, expected to go live in summer 2023. Gross margin of 52.5% is 170bps lower YOY, a resilient performance in the face of £22m in additional inbound freight costs. EBITDA of £125.1m down 27.9% YOY, reflecting £38m in additional outbound carriage costs, as well as an increase in marketing investment to combat weaker consumer demand and investment in growing new brands. Capital investment of £261.5m provides infrastructure to support future growth, including freehold properties, and significant expansion of warehouse capacity and automation. A new £325m RCF provides significant cash facilities in addition to year end net cash of £1.3m following record levels of capital expenditure, investment in working capital due to extended supply chain lead times as well as investment in new brands.

¨ Strategic progress: Group KPIs have improved YOY, with customers shopping more frequently, and spending more with the Group. Boohoo has transformed its brand portfolio in recent years, extending its total addressable market to more than 500 million customers. This compares to current active customers of 19.9 million, representing the significant growth opportunity that remains.

¨ Outlook: Current guidance assumes pandemic-related external factors impacting performance in FY22 will persist across FY23. For FY23 management expect low-single digit percent revenue growth, and adjusted EBITDA margin in the range of 4% to 7%.

¨ Forecasts: Our revised forecasts reflect updated guidance. We also introduce FY24E forecasts set modestly to reflect current headwinds. See exhibit 4 for detail.

¨ Investment case: In our view, Boohoo is emerging from the significant upheaval of the pandemic in a far stronger position versus two years ago. It has made significant and ongoing investment in its platform, brands, distribution, and people and now boasts a broader portfolio of 13 brands, targeting an addressable market of 500 million potential customers. It has established infrastructure capacity capable of supporting more than £4 billion of net sales, with automation investments driving future efficiencies and plans for its first international distribution centre underway, revolutionising its delivery proposition in the US. Numerous additional growth opportunities exist across its direct-to-consumer proposition, Debenhams and strategic wholesale partnerships with select partners globally. Performance in the UK offers a blueprint for the international growth opportunity that exists when transient pandemic cost headwinds abate.

¨ Valuation: At last nights close price Boohoo Group trades on FY22E EV/Sales of 0.5x falling to 0.4x, an EV/EBITDA of 9.2x falling to 6.9x and a PE of 33.2x falling to 20.8x. Near term growth and profitability is being impacted by cost inflation that we see as transitory in nature and likely to abate over the medium term as freight and logistics costs stabilise. Any improvement in cost headwinds in the current year presents upside potential to our forecasts.

Summary financials

Price80.0p
Market Cap£1,015.4m
Shares in issue1,269.3m
12m Trading Range69.6p – 331.9p
Free float75.50%

Financial forecasts

Yr end Feb (£’m)2021A2022A2023E2024E
Revenue1,745.301,982.802,032.602,165.50
y.o.y growth (%)41.313.62.56.5
EBITDA173.6125.1111.8140.6
Adj. PBT149.982.544.370.6
Adj PAT113.856.331.950.8
EPS (p) ful dil. adj8.674.392.483.96
Net cash2761.315.275.8
P/E9.5 18.8 33.2 20.8
EV/EBITDA4.4 8.3 9.2 6.9
EV/Sales0.4 0.5 0.5 0.4

Source: Audited Accounts and Zeus estimates

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