Boohoo Group: Ambitious UK investment plan

Boohoo Group

The publication of Boohoo Group plc (LON:BOO) Economic Impact Report, released yesterday, made clear its commitment to the UK, with plans to invest more than £500m over the next five years, creating 5,000 new UK jobs in the process. The report also detailed the Group’s material contribution to the UK economy, supporting more than 8,000 full time jobs and contributing more than £2bn to UK GDP since 2009. The investment signals both the quantum of the future growth opportunity and confidence in the Group’s prospects.

A commitment to the UK: Boohoo Group has announced plans to invest £500m across the UK over the next five years, creating an estimated 5,000 jobs in the process. Investment will include additional warehouse space to manage the Group’s ongoing growth as well as investment into technology solutions to drive efficiencies. Since 2009, Boohoo has contributed more than £2bn to the UK economy, and is estimated to represent 4.4% of the total UK clothing and footwear retail sector. For every job directly created by the Group, a further 1.7 jobs are created in the wider UK economy. This announced investment is a clear commitment to growing its business in the UK and not only signals the quantum of the growth opportunity that exists for Boohoo but is also a clear statement of confidence in the future prospects of the Group.

Raising standards: We have repeatedly argued that the company has, in our view, demonstrated its commitment to raising standards across its supply chain and the UK textiles industry as a whole, through its in depth, highly transparent investigation into identified shortfalls, and its full embrace of all recommended actions. We are of the opinion that working to fix the identified issues, rather than offshoring this work is the more socially responsible approach when considering the impact on jobs and the wider Leicester economy had the Group simply pulled out of this market. Its commitment to the region is reflected its new Leicester manufacturing facility and training academy, opening this October and expected to create c.200 jobs, as well as the establishment of The Garment and Textile Workers’ Trust, supporting all of Leicester garment industry workforce.

Sustainability in focus: Boohoo has made material progress in its sustainability agenda with an estimated 20% of its product ranges to be sourced from sustainable or recyclable materials by this autumn, with this to double to 40% by next summer. We believe the connotation that boohoo’s value proposition implies its garments are disposable does not reflect the important role it plays in offering low-income consumers access to affordable and fashionable clothing.

Investment case: An FY22E PE of 23.9x falling to 18.4x in FY23E is close to 5-year ratings low and is at odds with Boohoo Group’s ongoing track record of profitable and cash generative growth. Our conviction is supported by our intrinsic DCF modelling that derives a share price of 418p, some 48% ahead of current levels.

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