Boohoo Group plc FY19 Results beat expectations

Boohoo Group plc has announced a solid set of results for the full year ended 28 February 2019, ahead of our forecasts which were revised higher in January. In recent years the boohoo group has transformed from a single branded e-commerce player into a scalable multi brand platform with proven ability to execute rapid growth. Its disruptive model, centred on a customer led proposition with strong social media engagement is enabling it to take market share from its competitors. The Group’s well-invested infrastructure is now capable of supporting revenue of up to £1.5bn with significant projects including the Sheffield warehouse relocation and Burnley automation delivered in on time, on budget and with minimal operational disruption. In the year ahead, we forecast the boohoo group to break through £1bn of revenue and generate more than £100m of EBITDA. It’s growth rates and profitability are at a premium to its listed peer Group whist its brand-ownership gives it, in our view, unmatched flexibility in its proposition. Operational cash conversion in excess of 100% translates to positive free cash flow despite record levels of investment meaning it ended the year with net cash of £190.7m on the balance sheet giving it substantial fire power with which to execute its next stage of growth.

FY19 Results: Revenue of £856.9m is up 47.8% year on year (47% CER) reflecting impressive growth both in the UK (+37% YOY) and international markets (+64% YOY). Adjusted EBITDA of £84.5m is up 48.5% benefitting from a 190 basis-point expansion in group gross margin to 54.7%, enabling the Group to invest further in its customer proposition. Robust cash generation aided by improved inventory management resulted in net cash on the balance sheet of £190.7m at the year-end despite significant capital investments made in the yea. Of particular note was the acceleration of growth seen in the boohoo brand in the final 2 months of FY19, rising from a run rate of 15% to 25%. This is attributed to improved product as well as investment in marketing thanks to a 190bps improvement in group gross margin.

Forecasts: We move our FY20 forecasts higher to reflect improved FY20 guidance of revenue growth between 25%-30% (previously 25%). Based on our assumptions, the group will break through more than £1bn in sales and more than £100m in EBITDA in the year ahead. We have also introduced FY21 forecasts to the market today. A summary can be found in Exhibit 10.

Valuation: Based on our upgraded forecasts boohoo is trading on an FY20 PER of 44.9x falling to 35.7x in FY21. We believe this valuation is compelling versus its peer group, when considering the Group’s above average growth outlook and margin profile and its strong cash generation backed by net cash on the balance sheet of £190.7m.

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