Investec retail stock analyst’s note: is delivering in all markets – buy


Retail Times has teamed up with Investec to publish analysts’ notes on leading retail stocks. Today, Investec Securities analyst, Kate Calvert, says is delivering across the board and recommends “buy”

Q2 saw an accelerating sales trend as a result of management stepping up investment in customer recruitment, enhancement of the proposition in Europe through the launch of local language sites and a rebasing of prices in Australia. Comparatives in H2 begin to ease at a time when sales growth is accelerating, giving us confidence that the required operating leverage in H2 to hit FY forecasts of £19.5m EBITDA can be achieved. Investments in the business support the future growth prospects. Interims due 14 October. Buy.

  • Q2 sales accelerating: boohoo has seen growth accelerate from Q1’s +24% (+28% CER) to +37% (+41% CER). This has improved in all territories (UK +50% / Eur +50% / RoW: flat), giving confidence that the upwards trend can continue into H2 as operational benefits continue to kick in and comps ease (table 2). H1 sales are £67m, up 31% (+36% at constant exchange rates)
  • Revamped marketing and local language sites driving sales in UK and Europe: in both markets, revenues are +50% (Europe +61% CER). For the latter, a mature Irish market is likely to mean that the launch of local language sites in France & Germany has had a bigger influence on growth.
  • Picking up down under: the RoW slowdown, driven by Australia stood out in Q1 – sales were -20% (-7% CER). Action taken to reset pricing has clearly driven customer activity and volumes. Q2 sales were flat, but +8% CER
  • Investments in infrastructure means H1 EBITDA is expected to fall 17% to £6.5m (table 1): a result of start-up & plc costs and front-loading of operational investments. However, we expect these to be leveraged in H2 and FY forecasts remain unchanged (£19.5m pre £0.9m of share-based payments)
  • Putting in place building blocks to support future growth: boohoo has invested heavily, eg expanding the warehouse to support £350m of gross sales, and is rightly doing so to future-proof the business. Given the expected sales trend, a current valuation of 15x CY15E EV/EBITDA is undemanding. BUY