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No More Tears for Boohoo.com as Analysts Hail Strong Results

No More Tears for Boohoo.com as Analysts Hail Strong Results

(Bloomberg) -- Boohoo.com Plc shares went some way to making up the ground they had lost this year after full-year results came in well ahead of analysts’ estimates.

A gain of as much as 18 percent was the steepest since June 2017, reducing the stock’s year-to-date decline to about 4 percent. Before today, Boohoo had fallen 18 percent in 2018 on concerns the online fashion seller wouldn’t be able to sustain its growth and as a slew of European retailers reported weak sales.

Jefferies and Liberum both said the company’s guidance for more growth at healthy margins should reassure the skeptics. One of those for whom doubts remain is RBC, which maintained its bearish view on Boohoo’s ability to continue growing at its current pace.

No More Tears for Boohoo.com as Analysts Hail Strong Results

Jefferies, Niraj Amin

(Buy, PT 280p)
Results showing 97% growth in sales, a 60% rise in adjusted Ebitda and an Ebitda margin of 9.8% were “impressive,” with the margin ahead of the 9.4% that had been expected.

“We believe the outlook for Boohoo is more encouraging than consensus and valuation currently presumes,” Amin says, given co.’s forecast for 35-40% sales growth in the 2019 financial year on a “healthy” adjusted Ebitda margin of 9-10%.

Morgan Stanley, Andrea Ferraz

(Equal-weight, PT 200p)

Boohoo has historically been “very conservative” with its guidance, so the firm pointing to further growth ahead will be taken well.

In particular, the margin guidance will please investors given concerns about the scalability and sustainability of its margins.

Liberum, Wayne Brown

(Buy, PT 200p)

In addition to a near-doubling in revenue and earnings beating consensus, net cash was also “materially ahead.”

Some may call into question the relatively high customer churn rates Boohoo has, but Brown says the company has shown a “strong efficiency” in its marketing spend in order to allay concerns about future investments weighing on margins.

Shore Capital, Greg Lawless and Clive Black

(Hold, fair value estimate 154p)

Star performer was the PrettyLittleThing brand, where revenue rose 228% year-on-year.

Shares look “fairly valued” right now and while the results were strong, Lawless and Black see few short-term catalysts to drive earnings upgrades.

Barclays, Andrew Ross

(Overweight, PT 225p)

“Investors had been understandably nervous” ahead of Boohoo’s results given questions about balancing growth with margins, but these results should “to some degree reassure.” Margins were a little better and 2019 guidance underpins consensus.

The numbers were “never going to be enough to fully convince the bears, who can push their case sideways,” but they do represent a ”step on the road.”

RBC, Sherri Malek

(Underperform, PT 125p)

While adjusted earnings beat expectations, the performance of Boohoo’s brands was mixed. PrettyLittleThing sales were 8% ahead of consensus, but the Boohoo brand was 1% behind and Nasty Gal missed by 7%.

The recent de-rating of Boohoo shares to bring them more in line with rivals like Asos and Zalando is justified, Malek says. Current higher levels of growth that Boohoo is reporting are not sustainable and longer term growth prospects are “less attractive” than peers.

To contact the reporter on this story: Sam Unsted in London at sunsted@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Paul Jarvis

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