Boohoo Group: New Partnership for Debenhams in the Middle East

A new partnership with Alshaya Group in the Middle East, building on Debenhams established store presence in the region, the launch of a new local Debenhams eCommerce platform and providing a new route to market for the Group’s existing portfolio of brands.

The Partnership: Boohoo Group plc (LON:BOO) has announced a new partnership with Alshaya Group, granting it exclusive rights to operate Debenhams stores and to launch a new local Debenhams eCommerce platform in the Middle East (including Kuwait, Saudi Arabia, UAE, Bahrain, Egypt, Oman and Qatar).

Alshaya has an established track record of successfully operating Debenhams stores in this region, with 23 sites located in leading shopping malls. Debenhams brand has an established presence in the market; it has a top three market position in womenswear and menswear, a top ten share in childrenswear, and holds the number two market position in premium health and beauty.

Strategic fit: This announcement provides a further step in the acceleration of the Group’s integration and scaling of the Debenhams brand. The agreement also provides a new route to market for the Group’s existing brand portfolio, Alshaya Group will progressively introduce boohoo fashion brands into Debenhams Middle East stores from Q4 2021 with the launch of in the region planned for early 2022.

The Middle East currently represents a relatively small market for the Group (Rest of World contributed 5.1% of Q1 revenues) with this partnership allowing or the continuation of Debenhams strong market position in the region, as well as leveraging its reach across the wider brand portfolio. Today’s announcement also suggests further new strategic wholesale partnerships are in the pipeline, aiming to extend reach and build brand awareness.

Valuation: Boohoo Group currently trades on an FY22E PER of just 24.7x falling to 19.0x in FY23E on what we believe to be conservative forecasts. We believe this rating is fundamentally at odds with the Group’s solid track record of profitable and cash generative growth and the current trading momentum seen in the Group in Q1 FY22. In our view historic supply chain issues no longer represent a valid bear argument for the Group. Boohoo has consistently demonstrated its commitment to establishing itself as a benchmark of industry best practice over recent months, with full transparency over its review process and a total embrace of all recommended actions. All the while with underlying trading remaining characteristically robust. Our conviction in the stock is supported by our intrinsic DCF modelling, driven by the same conservative forecasts that suggests an implied share price of 418p, some 43% ahead of current level.

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