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AIMprospector

Is Boohoo a £280m Company With a £560m Price Tag? Boohoo plc is an online-only designer, manufacturer and retailer of fashion for budgetconscious 14–35 year olds. The company listed at the height of AIM’s recent IPO frenzy. How fair is today’s share price?

and an operating profit of £9m. The story behind the recent growth has been Boohoo’s non-European operations. In the twelve months ending Feb 2011, Boohoo sales outside of Europe totalled £0.5m. In the ten months ending December 2013, total sales to the same region hit £25.5m. Between the same two periods, UK sales increased from £22m to £58m and European sales rose from £2m to £8m.

Founded in 2006 by rag-trade executives Carol Kane and Mahmud Kamani, Boohoo plc joined AIM on March 14th of this year. The company has around 500 employees, fulfilling sales to over 100 countries.

IPO at 50p valued the company at £560m

Boohoo shares have attracted a strong market rating Thanks to favourable comparisons with AIM superstar ASOS, Boohoo shares have attracted a strong market rating. According to its own corporate website, Boohoo’s plan is to exploit the double-whammy of clothing sales’ continued migration to the internet and the expected revival in the UK fashion sector. The company plans to use the IPO proceeds to turbo-charge its growth by expanding into the USA, Central Europe and Scandinavia. Boohoo’s trading history has further encouraged comparisons with ASOS. After making revenues of £25m and an operating profit of £0.2m in 2011, Boohoo reported sales of £67m for the year to Feb 2013, with an operating profit of £3.3m. Even more impressive, in the ten months following, Boohoo made sales of £92m 4

Boohoo’s IPO at 50p valued the company at £560m. After soaring as high as 85p on its first day of trading, the shares lost ground as investor appetite for high-growth internet story stocks faltered. Even at today’s reduced price, the shares still trade on a very demanding multiple. Boohoo is priced as though it will replicate ASOS’ success. While the ex-UK growth has been very impressive, the majority of revenues are still generated at home where growth has been far less.

risk is that Boohoo fails to execute its expansion strategy flawlessly Boohoo is the kind of share that can suffer in a market sell-off. Not only will the company have to deliver a perfect report card, wider stock-market conditions must stay bullish. I expect that global stock markets may enter a period of correction as the central banks begin tightening. An increase in the yield on low-risk assets

such as bonds and treasuries means that growth stocks like Boohoo have to work even harder to deliver an acceptable return. Unlike ASOS, Boohoo does not have any significant early mover advantage. Online fashion is more competitive than it was a decade ago. IPO investors in Boohoo could get jumpy if they see the wider market turn. The biggest risk is that Boohoo fails to execute its expansion strategy flawlessly. This would bring a reduction in earnings forecasts and a big cut in the company’s market rating. The result would be a dramatic share price decline. That said, Boohoo has been incredibly successful so far and has powerful consumer trends working in its advantage. After weighing all of this up, I have decided that Boohoo shares are trading at around twice the price they should be. For this reason, I have opened a short spread-bet with Spreadex, betting that the Boohoo share price will fall. The fever around smallcap IPOs has broken. It could be a long way down for several young AIM companies. article by David O’Hara Boohoo.Com (LON:BOO) FOR Enjoying fantastic growth Consumers buying more fashion online AGAINST Demanding valuation Kind of stock that market is turning against Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£560m 49.5p:50.0p 49 0 42p:85p

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June 2014 AIM Prospector  
June 2014 AIM Prospector  

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