Ok, so let’s click those links and see what Andrew Hollingworth (AH) has to say about BOO.
First off, the PDF is dated September 2020 and the shares were then 320p.
AH summarises the case:
Boohoo we think has cherry picked and executed upon some of the best retail business models out there and married these traits with some great technological, logistical and social trends/brands of today. It has that unusual combination of owner-manager, very high organic growth, extremely high returns on capital and best of all: its model looks very scalable.
But AH also says:
This note is really intended as a marker.
Because at the time he was not convinced about the upside possibilities:
We look for mis-priced compounders or wonderful businesses that might not be priced as such (GARP if you like). For all of our admiration of Boohoo the margin of safety in paying today’s price is far from clear.
This is quite prescient from AH:
"Current trends and investing markets do not seem to suggest any other way of investing in such a business than paying up for the shares today, but we have learnt that the investing world is a funny place. Once loved brands such as Chipotle or Greggs can fall 50% and then treble. Next plc the stable, best in class incumbent in this sector still sees it shares fall c.30% every 5 years. Maybe an opportunity will arise. In maverick run businesses’ in the UK they have a habit of doing so. "
AH’s approach here is commendable. Identify what you think is a very good business, then do the homework, and then hope for a buying opportunity at which point you should have already developed the full conviction to buy.
Onto the video, published July 2021 when the price was 261p. AH confirms he has been buying BOO. A summary:
Investors generally are asking cynical questions of BOO and Asos, rather than just admiring them for becoming global players in fast fashion.
BOO is being held to account over ESG issues, while a Chinese competitor is not. Investors can’t complain about ESG issues and also complain about non-ESG rivals growing faster.
We really like owner managers, even if they have foibles and are not perfect.
I get why AH likes owner managers. But there’s never any harm in asking cynical questions, because that way you can help determine whether your investment theory is robust or flakey.
Complaining about other investors complaining about ESG issues I think misses the point. The bigger worry is BOO suffering greater expenses from abiding to ESG standards, while losing market share because a non-ESG rival can price products more competitively.
AH refers to other companies in that report to justify his BOO:
The best businesses that we study use scale cleverly to drive efficiencies (Ryanair, Wetherspoons are well-worn examples)
But BOO’s last trading statement said
This is as a consequence of significantly higher returns rates impacting net sales growth and costs
The difference perhaps is Ryanair and Wetherspoons do not have returns. Once you have taken the flight or drink, that is it – no refunds. BOO meanwhile has to service refunds from customers ordering numerous items and returning those that don’t fit. The economics may not be exactly the same.
A BOO number to monitor perhaps is accruals within Trade and Other Payables, which will include refunds owed to customers:
AH also admits:
We are well outside our circle of competence in assessing the subjective and fickle world of 16-24 year-old fashion trends, but we will say with some confidence that any pivot by Boohoo to in time add menswear brands (beyond its in-house BoohooMan), will surely be easier than the other way round. Ladies young fashion is surely the hardest market to crack.
So a lot of trust is being given to management here and presumably its ambition of reaching a 10% adjusted EBITDA margin. Fair enough, but I would be asking the cynical questions on this just in case.
I would have saved myself £££ on my Tasty shares had I asked cynical questions about its margins. The Kaye family had produced restaurant multi-baggers with ASK Central in the 90s and Prezzo in the 00s and Tasty was set to be their hat-trick in the 10s. But minimum-wage rises alongside growing competition that kept a lid on menu prices squeezed margins before the inevitable roll-out stopped.
I had a meeting with Tasty co-chief execs Sam Kaye and Jonny Plant during 2017 and I asked about margins and staff numbers, and they said margins would return to 10% and a comparison with Prezzo was not like-for-like due to how part-time staff were accounted for. In retrospect Tasty’s numbers were showing the economics of restaurants had weakened and management – despite the super track record – could not do much about it.
Back to AH. His November factsheet
VT-Holland-Advisors-Equity-Fund-Factsheet-2021-11.pdf (284.6 KB) shows a 3.5% position for BOO. Will be interesting to see if his next factsheet shows him buying after the December warning and the shares being 50% lower since his July video.