# Boohoo Group emerging in a far stronger position versus two years ago says Zeus

- Link: https://www.directorstalkinterviews.com/boohoo-group-emerging-in-a-far-stronger-position-versus-two-years-ago-says-zeus/4121063123
- Published: 2022-05-05T07:19:04+01:00
- Author: Amilia Stone

¨** Financial performance**: **[Boohoo](https://www.directorstalkinterviews.com/company/boohoo/boo.l)
Group plc** (LON:BOO) revenue of £1,982.8m is +13.6% YOY and +41.3% versus FY20,
representing significant market share gains versus global apparel markets that remain
below pre-pandemic levels (UK: +27.3% versus market -3%, US +3.8% versus market -
9%). The UK delivered a standout performance +27.3% YOY with strong growth across
both established and new brands. Demand in international markets has been impacted
by extended delivery times due to constrained airfreight capacity, a headwind that
we see as transitory, and that will be in part resolved by the launch of the Group’s
US distribution centre, expected to go live in summer 2023. Gross margin of 52.5%
is 170bps lower YOY, a resilient performance in the face of £22m in additional inbound
freight costs. EBITDA of £125.1m down 27.9% YOY, reflecting £38m in additional outbound
carriage costs, as well as an increase in marketing investment to combat weaker 
consumer demand and investment in growing new brands. Capital investment of £261.5m
provides infrastructure to support future growth, including freehold properties,
and significant expansion of warehouse capacity and automation. A new £325m RCF 
provides significant cash facilities in addition to year end net cash of £1.3m following
record levels of capital expenditure, investment in working capital due to extended
supply chain lead times as well as investment in new brands.

**¨ Strategic progress**: Group KPIs have improved YOY, with customers shopping 
more frequently, and spending more with the Group. Boohoo has transformed its brand
portfolio in recent years, extending its total addressable market to more than 500
million customers. This compares to current active customers of 19.9 million, representing
the significant growth opportunity that remains.

**¨ Outlook**: Current guidance assumes pandemic-related external factors impacting
performance in FY22 will persist across FY23. For FY23 management expect low-single
digit percent revenue growth, and adjusted EBITDA margin in the range of 4% to 7%.

**¨ Forecasts**: Our revised forecasts reflect updated guidance. We also introduce
FY24E forecasts set modestly to reflect current headwinds. See exhibit 4 for detail.

**¨ Investment case**: In our view, Boohoo is emerging from the significant upheaval
of the pandemic in a far stronger position versus two years ago. It has made significant
and ongoing investment in its platform, brands, distribution, and people and now
boasts a broader portfolio of 13 brands, targeting an addressable market of 500 
million potential customers. It has established infrastructure capacity capable 
of supporting more than £4 billion of net sales, with automation investments driving
future efficiencies and plans for its first international distribution centre underway,
revolutionising its delivery proposition in the US. Numerous additional growth opportunities
exist across its direct-to-consumer proposition, Debenhams and strategic wholesale
partnerships with select partners globally. Performance in the UK offers a blueprint
for the international growth opportunity that exists when transient pandemic cost
headwinds abate.

¨ Valuation: At last nights close price Boohoo Group trades on FY22E EV/Sales of
0.5x falling to 0.4x, an EV/EBITDA of 9.2x falling to 6.9x and a PE of 33.2x falling
to 20.8x. Near term growth and profitability is being impacted by cost inflation
that we see as transitory in nature and likely to abate over the medium term as 
freight and logistics costs stabilise. Any improvement in cost headwinds in the 
current year presents upside potential to our forecasts.

**Summary financials**

| Price | 80.0p | 
| Market Cap | £1,015.4m | 
| Shares in issue | 1,269.3m | 
| 12m Trading Range | 69.6p – 331.9p | 
| Free float | 75.50% |

**Financial forecasts**

| Yr end Feb (£’m) | 2021A | 2022A | 2023E | 2024E | 
| Revenue | 1,745.30 | 1,982.80 | 2,032.60 | 2,165.50 | 
| y.o.y growth (%) | 41.3 | 13.6 | 2.5 | 6.5 | 
| EBITDA | 173.6 | 125.1 | 111.8 | 140.6 | 
| Adj. PBT | 149.9 | 82.5 | 44.3 | 70.6 | 
| Adj PAT | 113.8 | 56.3 | 31.9 | 50.8 | 
| EPS (p) ful dil. adj | 8.67 | 4.39 | 2.48 | 3.96 | 
| Net cash | 276 | 1.3 | 15.2 | 75.8 | 
| P/E | 9.5 |  18.8 |  33.2 |  20.8 | 
| EV/EBITDA | 4.4 |  8.3 |  9.2 |  6.9 | 
| EV/Sales | 0.4 |  0.5 |  0.5 |  0.4 |

_Source: Audited Accounts and Zeus estimates_

Share on: