boohoo.com — Update 27 April 2016

boohoo.com — Update 27 April 2016

boohoo.com

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Written by

David Stoddart

boohoo.com

A sizeable opportunity

Consumer

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27 April 2016

Price

49.25p

Market cap

£552m

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Share details

Code

BOO

Listing

AIM

Shares in issue

1.12bn

Business description

boohoo.com is an online own-brand fashion retailer that designs, sources, markets and sells own brand clothing, shoes and accessories through its website. It is increasingly international and sells products into over 100 countries.

Bull

Online retailing continues to grow substantially more quickly than store-based retailing.

Boohoo.com has a cash-rich balance sheet that should allow it to capitalise on its growth opportunities.

The business is relatively young and small, leaving a substantial growth opportunity.

Bear

The P/E already discounts strong growth and there is no yield.

Investment plans might result in lower margins in the short term.

Although the shares have risen steadily for several months, they have previously experienced severe declines on more than one occasion.

Analysts

David Stoddart

+44 (0)20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

boohoo.com beat revenue and earnings expectations for FY15. Guidance for FY16 also appears beatable. Indeed, we see potential for it to grow profits substantially in all of its main territories for the foreseeable future. It has the financial resources to fund that growth internally. These factors underpin the premium P/E rating.

FY15 preliminary results

Impressive FY15 sales growth (+40%) would have been c 2pp higher but for currency headwinds. Investment in the customer offer and in ‘wholesale’ helped to grow sales but reduced the gross margin by 300bp to 57.8%. However, better targeting and leverage from sales growth allowed boohoo.com to recoup this from a 300bp reduction in the marketing to sales ratio. After investing in distribution, the EBITDA margin declined from 10.1% to 9.6%: EBITDA increased 32% to £18.7m.

Substantial potential remains

boohoo.com generated strong sales growth in each territory: UK +38%, rest of Europe +25% and rest of world +56%. Although it sacrificed contribution margin in each territory to achieve the growth, it increased customer numbers by 34% to 4m. The conversion rate of visits to orders improved 40bp to 4%. Average order value slipped 4.8% in response to investments in the offer, which appear justified by the 8% increase in order frequency. The market appears receptive and the company has the financial strength to capitalise: it ended FY15 with net cash of £58.3m.

Consensus estimates: Growth to continue

Management’s guidance is for c 25% sales growth in FY16e. It aims to maintain EBITDA margins but will invest margin to drive sales growth if appropriate. At this stage, prioritising growth over margin is sensible. boohoo.com is targeting capex of £16m this year, most of which it will invest in expanding distribution capacity. Thereafter, a front-end loaded, seven-year, £70m warehouse expansion and automation investment programme will eat into the cash pile.

Valuation: Premium justified

Although one can never ignore execution risk in a business growing so rapidly, last year’s earnings ‘beat’ provides encouragement that the company can seize the substantial opportunity before it, justifying its premium P/E.

Consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

02/15

139.9

12.3

0.9

0.0

54.7

N/A

02/16

195.4

15.7

1.1

0.0

44.8

N/A

02/17e

240.4

20.3

1.4

0.0

35.2

N/A

02/18e

291.5

24.8

1.7

0.0

29.0

N/A

Source: Company data, Digitallook. Note: 2015 figures shown before IPO costs.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

migme — Update 27 April 2016

migme

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