Boohoo Group: FY21 Results

Boohoo Group plc (LON:BOO) has announced results for the 12 months ended 28 February 2021, reporting a strong finish to the year, with performance ahead of ZC’s forecasts, driven by strong momentum in both the UK and USA in the final months of the year. Profit generation has been robust, despite significant cost headwinds resulting from COVID and the impact of a number of dilutive acquisitions made over the year. The shares have traded sideways in recent months, despite the Group’s continued strong trading performance and now trade on just 27.7x FY22E PE. This rating represents a material discount to sector peers (ASOS CY21E PE of 37.5x) despite the Group’s superior growth profile and profitability.

Agenda for change: Today’s announcement gives an update on the Agenda for Change programme. We believe the comprehensive and open response to the allegation raised last summer reflect boohoo’s commitment to not only addressing identified shortfalls but raising standards across the UK manufacturing industry as a whole, setting a benchmark of best practice.

FY20 Results: Revenue of £1,745.3m is +41% YOY, with strong growth across all regions and brands. EBITDA of £173.6m is +37% YOY, at a margin of 10.0% 20bps lower YOY (FY20A: 10.2%). We see this slight margin dilution as a robust performance, in the face of COVID cost headwinds. The Group remains highly cash generative with £201.1m operating cash inflow in the period (116% EBITDA conversion) ending the year with net cash of £276.0m despite significant investment in capex (£49.3m) and acquisitions (£235.3m).

Acquisitions: Acquired brands complement the Group’s existing portfolio,
extending its demographic reach, expanding its price point, and broadening its offer. Debenhams presents a transformational opportunity to the Group
establishing a marketplace and opening up significant new product categories.

Forecasts: We revise our forecasts in line with guidance and introduce FY23 estimates, see exhibit 4. Guidance at this early stage of the year is typically cautious with minimal contribution assumed from new acquisitions. The c.5% uplift from new acquisitions guided equals just £87m in revenue, versus a combined run rate of £505m in ongoing sales at the point of respective acquisition.

Valuation: Based on our revised forecasts, Boohoo Group trades on just 27.7x FY22E PE, falling to 21.3x in FY23E. This represents a material discount to the sector (ASOS CY21E PE of 37.5x) which we believe is unjustified given the Groups solid track record, superior growth profile and leading profitability. This is supported by our DCF modelling implying 418p or 28% upside to current share price based on what we see as conservative assumptions.

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