Boohoo (BOO): Target £10+

Came across this video on PIworld: piworld 2020 round up of the year: Paul Scott - PIWORLD

At 10.45 min Paul Scott is asked which of his current holdings (at December 2020) he is most bullish about for 2021.

He says without doubt it is Boohoo, far and away his largest holding. Reckons that without the ESG issues the SP would be double its current price (£3 in 12/20 x2 =£6) and he has a target price of £10+ with a hold forever approach to the stock.

He has suggested to the board that Boohoo consider listing on NASDAQ where they would get a more favourable rating.

Extremely bullish stuff. But then again what do I know - I bought at 30p and sold when it doubled!

Snazzy

ps Confession time - I bought back in at 175p on a dip

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The NASDAQ listing is often quoted as a way to increase the share price of a company. Sometimes it works, other times it does not. Either way for a listing on NASDAQ it would probably take a long time to come to fruition… 2 years if they started now?..and not without notable costs too.

The ‘problem’ I have with Boo is that PI’s love to day trade the hell out of it coupled with a national press that seems to have it in for the company. I see today there is a story about someone being upset that the dress they ordered had been rebranded. In truth it’s another ‘non’ story elevated to national status.

The other negative aspect with Boo is that in many ways it is perceived as something of a tech stock and traditionally trading on high multiples. In recent times such tech stocks have come off the boil partly as a result of increasing US Gilt yields.

Nevertheless the company is profitable, maintaining high top line growth rates and can forsee that continuing for some time yet.

My feeling is that Boo is genuinely a long term hold and forget type of share because the business is successful.

The question then becomes will someone come along and buy it? Always possible.

I have a reasonably large share holding in BOO… My third largest holding in the portfolio… Let’s see what April brings.

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With BOO getting close to its 2-year low, maybe it’s time to look at it again.
Reading previous posts here and elsewhere, I am amazed at the number of respected analysts and investors who got this one wrong, Paul Scott to name one.
There must a time when you have to stop saying “I am playing the long game…”
Personally, I am baffled. I have only played this stock as a trade, making a modest profit so far.
From a pure technical point of view, the chart is screaming a buy. From a fundamental point of view, it too is screaming a buy!
So why is it that I am still sitting on my hands?
Well, my confidence in this management is frankly zero. Take a fantastic company, put it in the hands of “louche” management, then you get what we have been witnessing with BOO.

The most I am likely to do in the next few days is to take a long position as a trade, when the SP starts to turn, with a tight stop loss to boot.

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Hi Ramridge,

To be fair to Paul he was very bullish on BOO after the shares dived to 30p in early 2015.

But the shares have been going sideways for four years now…:

BOO sharepad share price

…which I would say would make most BOO investors frustrated rather than wrong :slight_smile: Paul was still bullish during June: piworld interview: Paul Scott June 2021 update - PIWORLD

The difference perhaps between Paul and most other BOO shareholders is Paul has real-world insider experience of clothes retail (and actually with the BOO founders), and this experience gives him the conviction to hold during a market/company wobble.

Of course Paul could be wrong, but I suppose much of the PI anxiety about BOO is due to most holders being rather distant from the company’s customer demographic and can’t really assess the popularity of the company first hand.

FWIW I have no strong opinion either way. The recent results showed costs starting to creep up and I wonder whether BOO will always be able to sell £5 dresses at an 8% margin. Some of the ESG issues may in time be solved through extra expenses.

Mind you, the forecasts below suggest a 2024 P/E of less than 13 at 190p:

Maynard

Hi Maynard
I was only using Paul to illustrate my point that several serious and well respected investors have got it “wrong” with this share - based on recent performance.
I have followed Paul for as long as he has been writing on Stockopedia. He has an incredible record and I rate him as one of top 5 analysts in the UK.

Best wishes, Ram

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I have no idea if the claims made in this short report from May 2020 are correct, but it seems well put together:

OTOH, two months after the report in July 2020, the directors bought:

Boohoo’s Mahmud Kamani and Carol Kane spent £15 million between them, having seen the AIM-listed fashion retailer almost halve in value since allegations about working conditions at a factory of a Leicester-based supplier.

Thursday’s purchases by Boohoo’s co-founders saw Kamani buy £10.7 million worth of shares at 214.2p and Kane pick up around £4.8 million at the same price. Kamani owns 12.5% of the company, worth about £320 million, while Kane has 2.6% or £66 million.

Hi Maynard
BOO has taken another kicking this morning. your views?
Thanks

Thanks anon. Very useful. I am considering this as a short term trading opportunity. Tempting.
Best.

Hi Ram

Never be afraid to give your views as well :slight_smile:

Today’s statement refers mainly to general pandemic disruption, in part causing higher returns. Sales and adjusted Ebitda to be lower than expected:

"For the year ending 28 February 2022, the Group now expects net sales growth to be 12% to 14%, compared to previous guidance of 20% to 25% growth.

Adjusted EBITDA margin for the year is expected to be 6% to 7%, compared to previous guidance of 9% to 9.5%, implying adjusted EBITDA of between £117 million to £139 million."

Guidance implies H2 sales of c£996m (+7%) and H2 adjusted Ebitda of c£43m (-51%(!)) taking the mid-range full-year assumptions of sales of £1,972m and adjusted Ebitda of £128m.

Q3 sales are up 10% to £506m, which implies Q4 sales could be up 5% to £490m. H1 sales were up 20%, so the sales growth rate is slowing. I don’t know whether this slowing is due to ‘lockdown buying’ reversing or something more fundamental.

Over the years I have seen many specialist fashion retailers go ex-growth and their P/Es de-rate significantly (to single-digit multiples) as the market fears they will never recover. Could happen here I suppose if the pandemic excuses are hiding critical issues and/or group sales go into reverse.

Adjusted EPS was 8.6p per share for FY 2021, and if you assume a fair multiple is 15x once EPS recovers back to 8.6p, then the price will be 129p. Price is now 117p.

Something to watch is the cash position. Net cash was almost £100m at the half year, but is now £70m after Q3. So cash burn due to the hefty capex is £10m a month, and therefore the net cash position will disappear by June if the Q3 burn rate continues.

From my perspective, not much has changed from this :point_down:

Always helps with investing if you understand why customers purchase from your companies. I am not in BOO’s customer demographic, and don’t know if the higher returns are a temporary Covid problem or something more sinister. The market always has a habit of testing shareholders’ convictions with a company and this seems like a good test for BOO investors.

Maynard

property is probably going on the cheap in london, with so many businesses relinquishing their floorplate. So buying a long term asset in soho W1 is not necessarily a bad decision, long term

Fair point, Maynard. Good discussions should be an exchange of views.

Hi anon
Yes, you are of course right. Catching a falling knife is a dumb thing to do. Got a few scars to show. :disappointed_relieved:
In the end wiser counsel like yours prevailed, and I resisted taking a punt yesterday.
Best.

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hi ramridge

Any investor who claims not to have the scars to show is more than likely a dishonest investor or simply in denial.

As for BOO I have been a long term holder and have been suffering the pain. I could easily have been tempted to further average down but I have a financial limit to the level of hard cash invested in any one share and BOO is at that limit. That’s a red line for me which I will not cross. I may well miss an opportunity but will sleep easier.

At least yesterday’s bad news from BOO was offset for me by the announcement from DOM of a resolution to the long running dispute with franchisees.

The bottom line for all investors is having more winners than losers in our portfolios. Non of us will ever be able to avoid our share of bad picks and we just have to accept that as part of the investment journey.

The last few months have been very difficult for small cap investors so let’s hope the worm turns soon.

Good luck to all.

Snazzy

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Laura Ashley was odd in that they pitched themselves as a high end brand but relocated into cheap out of town units. Hardly a befitting location for premium brand, among Caroline warehouse and Nando’s.

Of course, no advice and DYOR are clearly understood. :smiley:

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It strikes me that we need a fashion conscious teenager or mum to give us a clue on the saleability of Boohoo clothes. It’s like taking a punt on miners or oil drillers when you are not a geologist

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I really like the way Andrew Hollingworth thinks and I really like his insights on Boohoo…

Note: This is one of his rare full free research papers - but you might have to sign-up to access it…

hi Colin

You may also be interested in this PI World interview with Andrew Hollingworth in July this year.

He talks about Boohoo at 23m19s.

Regards

Snazzy

A polite reminder about the aim of this forum:

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Otherwise the more insightful contributions may be overwhelmed with one-liners that not everyone needs to read.

I have removed/amended various posts so the focus remains on Boohoo.

Thanks
Maynard

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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.

Maynard

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