Small Cap Value Report (6 May 2015) - BOO

Wednesday, May 06 2015 by
27

Good morning!

It's quiet again for company results today - I must make a note to take this week as holiday next year.

Today's report will be a little later than usual, as I'm heading into the City for the analyst presentation for Boohoo.Com (LON:BOO) which is one of my favourite stocks at the moment. I'd better get my skates on, as it starts at 9am.


Boohoo.Com (LON:BOO)

Share price: 27.38p (down 2% today)
No. shares: 1,123.1m
Market Cap: £307.5m

(at the time of writing, I hold shares in this company)

Preliminary results - for the year ended 28 Feb 2015 are out this morning. I've just got back from the analyst presentation, which was well attended - about 40-50 analysts there at a guess, so the company is certainly getting noticed. I asked an adviser whether the overhang from disappointed IPO buyers (who overpaid, at the 50p IPO price) has now cleared, and was told that they believe so - i.e. people who want to sell are now gone.

I'll spend a bit more time on this company, as it's one of my favourite growth companies at the moment, and is the only online etailer I can find which is strongly profitable, growing at a decent pace organically, has global reach, yet is still reasonably priced (house broker Zeus have it on a cash adjusted PER of 20.7 times their current year forecasts).

Here is the highlights table from today's results. I've highlighted the items that are most important, in my opinion;

5549e6e6187a1Boo_table.PNG

First thing to note is the strong top line growth, up 27% as reported in sterling, but up 31% in constant currency. BOO sales are strongest in the UK, at 67% of total turnover. Its other most important markets are Australia, France, and USA. The company sells into most countries in the world, but has decided to focus its efforts on the countries where it sees most potential. As the CFO jokingly commented,

"Mahmud's (the founder, who is known for his colourful language!) new F-word is 'focus'".

Mahmud only spoke once, and spent the whole meeting fiddling with his phone & looking preoccupied/bored, whilst Neil Catto (CFO) and Carol Kane (joint CEO) gave presentations & fielded questions.

Expectations at the time of the IPO last year were far too high, and the business had a slowdown in…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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boohoo.com plc is an online fashion retail group. The Company is based in the United Kingdom and has a strong presence in the United Kingdom, the United States, Europe and Australia, selling products to almost every country in the world. The Company owns the boohoo, boohooMAN, PrettyLittleThing and Nasty Gal brands. These brands design, source, market and sell clothing, shoes, accessories and beauty products targeted at 16-30 year old consumers in the United Kingdom and internationally. more »

LSE Price
219.25p
Change
-0.7%
Mkt Cap (£m)
2,480
P/E (fwd)
68.5
Yield (fwd)
n/a



  Is Boohoo.Com fundamentally strong or weak? Find out More »


27 Comments on this Article show/hide all

Redrumtum 6th May '15 8 of 27

In reply to herbie47, post #3

Herbie, have you read the PUR RNS - it's all in there. They have settled the factory fire insurance claim and won't be rebuilding, instead returning excess proceeds to shareholders. So PUR now valued at insurance proceeds ('significantly more than 60p') plus the remaining plant in the US.

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Paul Scott 6th May '15 9 of 27
1

In reply to FREng, post #2

Hi FREng,

I've had a quick look at the Montier C Score for Boohoo.Com (LON:BOO) and it looks a red herring to me - none of the risk factors are relevant, or a problem (see below).

Also, the Altman Z-score looks a red herring too - possibly because it hasn't updated yet for the post-IPO fundraising. Clearly with its huge cash pile, BooHoo should be deep in "safe" territory.

Still, it's always worth checking out any potential red flags, but there are no issues here whatsoever, in my view.

Regards, Paul.

5549ff5c7baf1BOO_Montier.PNG

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Paul Scott 6th May '15 10 of 27
1

In reply to Glaws2, post #5

Hi Glaws2,

Indeed, putting on my "Press" hat, does have distinct advantages, in terms of access to companies & meetings.

That said, Boohoo.Com (LON:BOO) recorded a detailed webcast, with slides, which is available here. This gives you the same info that we had at the meeting.

Regards, Paul.

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mrwhits 6th May '15 11 of 27
4

Hi Paul,

I'd be interested in hearing your views on the free cash flow compared to the market cap of BOO, as I make free cash flow about £7M against a mktcap of approx £314M, a whopping 44 times.

The company reports free cash flow of £5.843M, so an even bigger multiple on their own calculation.(53 times).

Do you think this still looks like value or GARP?

Regards

mrwhits.

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herbie47 6th May '15 12 of 27

In reply to Redrumtum, post #8

@ Redrumtum

Yes of course I have read it but its not very clear to me, on the BBs there are debates about the value of the company now, many have sold, not surprising because before the fire the sp was about 60p, now after the fire and claim settlement (which is not disclosed) the sp is about 108p, I was hoping for Paul's views.

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steviej 6th May '15 13 of 27
3

In reply to Paul Scott, post #7

Marziapie's boyfriend is pewdiepie. Does silly youtube videos that make him millions as he has more viewers than most TV programs. Probably the most famous person in the world you've never heard off. He's Swedish but lives in Brighton:

en.wikipedia.org/wiki/PewDiePie

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peterg 6th May '15 14 of 27
2

In reply to steviej, post #13

Don't we know another famous blog and video star who lives in Brighton? :-) Clearly a hot bed.

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DarwenLad 6th May '15 15 of 27
5

Thanks for the excellent Boo write-up Paul. I really hope that this stock is going to be a North of England success story but I have my reservations. I think the group is being overambitious on the international front, a financial graveyard for many UK retailers, and am uneasy about the lack of interest shown by the company's founder Mahmud at today's investor presentation. Maybe he is a brilliant internet retailer, but his failure to participate more fully in the investor presentation, combined with his recent far from flattering press interviews, suggests that he might be far better suited to running a private company than a listed company. My final concern relates to Boo's logistics infrastructure. I am not a logistics expert but have been to have a look at Boo's new Burnley warehouse on a couple of occasions. Whilst it is a very big "shed", its location seems less than ideal. Not only is Boo's logistics centre situated near the end of the M65, a motorway to nowhere, but Boo's delivery trucks have to travel through Burnley to access the M65. One might have expected Boo to site its logistics centre next to a motorway junction, like many internet retailers. Last October's resignation of Boo non-exec director Petar Cvetkovic, a logistics expert, only six months after Boo's IPO also raised a warning light. Maybe I am reading too much into his departure, but it strengthens my suspicion that Boo's expansion plans are being "done on the cheap" and may not be as well thought out as one might hope.

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Paul Scott 6th May '15 16 of 27
1

In reply to mrwhits, post #11

Hi MrWhits,

The free cashflow figures you mention are impacted by the fairly heavy capex spend on the warehouse extension - they are gearing up to be able to handle sales of £500m+.

So in the context of this being a company which is expanding quite rapidly, and incurring heavy capex, it's impressive that they are generating any free cashflow at all! Most growth companies are cash hungry at this stage of their life.

Wind forward several years, and if all goes well, I reckon this company could be an absolute cash machine, throwing off buckets of free cashflow, once the capex is done.

Importantly too, there is no risk of any dilution here - as the company is already cash generative, and has lots of surplus cash on the balance sheet, so there should not now be any fundraisings needed.
Who knows, they might even bolt on some smaller competitors? Note that they have a Call Option (for £5m) to buy PrettyLittleThing.com

Regards, Paul.

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Paul Scott 6th May '15 17 of 27
1

In reply to steviej, post #13

Hi Steviej,

Thanks for the info on blogger pewdiepie. I've just been looking on YouTube, and he has an astonishing 34.4m subscribers to his channel!

Here is the BooHoo "haul" video he did with his girlfriend.

It's one of the things I like most about BooHoo, that they are focused very much on this blogger trend. What amazes me about these blogger videos is that they don't have any discernible talent, but all that is required is to (a) be good looking, and (b) personable & a bit quirky. They then seem to build up a fan base, who enjoy watching their inane videos.

As long as the audience buy their clothes from BooHoo after watching these videos, then I'm happy!

Regards, Paul.

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extrader 6th May '15 18 of 27

Hi Paul,

Re an earlier poster and the Brighton connection : you've now added (a) be good looking, and (b) personable & a bit quirky

Three out of three......you are pewdiepie's Doppelgaenger and I claim my £ 5. !

How's the £ 1 diet going ? Google 'bullet-proof coffee', if I haven't suggested before. Mind you, premium coffee + grass-fed butter + organic coconut oil would probably break your budget....

ATB

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hayashi22 7th May '15 19 of 27
6

Having speed watched that video. What an inane load of old ......still if the bird got her kit off it would be even more popular. Bit of a looker.

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PhilH 7th May '15 20 of 27
4

In reply to hayashi22, post #19

And you wonder why so few women engage with investing bulletin boards.

Professional Services: Sunflower Counselling
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Warranstar 7th May '15 21 of 27

Paul,
Please can you stick your neck out and give us your estimate for Boohoo.Com (LON:BOO) medium term future EPS growth rate? I would use this information to calculate the Graham Formula Margin of Safety.

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Paul Scott 7th May '15 22 of 27
3

In reply to Warranstar, post #21

Hi Warranstar,

Gosh you're putting me on the spot there! I don't know is the honest answer of course - forecasting is just educated guesswork really, and I don't think anyone can meaningfully forecast more than about 2 years ahead for most businesses.

It's complicated by the fact that Boohoo.Com (LON:BOO) are in rapid growth phase still. So they're "investing ahead of the curve" on numerous fronts, especially the big jump in admin costs, and warehouse costs, which they implemented in 2014/15. So that is getting the busy ready for much greater sales volumes.

My main impression from the analyst presentation is just how busy they have been, improving and expanding the business on many fronts. It reminds me of my days at Pilot, when we were growing the business very fast, it was tremendously exciting - but costs are stepped - so you have to invest in e.g. an HR Dept, which is a burden in year 1, but then the cost only marginally increases as the business say doubles in size. You just add in one or two extra assistants, whilst the core mgt are able to handle a much bigger business.

That's the stage BOO is at now. I have really high hopes for this share, with a 3+ year view, as I think they are doing so many things right. And now that it has temporarily disappointed, the ex-cash rating is modest for a rapid organic growth company, at about 20.

Overall then, I would suggest perhaps a relatively modest, say 20% rise in EPS is possible this year, but then maybe a 20-30% rise in EPS for several years after that. I think the launch of their App in 60 days could provide a good boost to sales, it's amazing they don't have one yet. You have to go via this online magazine they created, or through Safari.

There's a lot of competition, but Kamani is extremely experienced in this sector - he's a bit like a Philip Green rag trader. We used to buy gear off his company in the 1990s, when I was in this sector. It was cheap & cheerful stuff, but they have very good supply chain contacts.

I think the trick he's pulled off, is to bring in a professional layer of management to manage things, now that the business has grown a lot larger than its entrepreneurial origins.

The mood music was all very positive about current trading, trends, etc. So I think they are more likely to meet, or beat expectations going forwards, which at some point should trigger a nice re-rating. Obviously they want to get it back to the IPO price of 50p, but I think we may have to wait until next year for that.

Regards, Paul.

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Beginner 26th May '15 23 of 27
3

In reply to Paul Scott, post #7

Hi Paul
Just thought I would let you know I was working in the local Tech last week. The catering students hang their coats and bags on the hooks outside the kitchens. Twenty eight coats; seven with Boohoo.Com (LON:BOO) labels. Wish I had bought some!!! (Shares, not coats!!!)

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Warranstar 26th May '15 24 of 27

In reply to Paul Scott, post #22

Paul
I appreciate the quality and length of your reply.
Thanks

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herbie47 26th May '15 25 of 27
2

In reply to Beginner, post #23

Its not too late, sp has drifted down lately. Compared to Asos it looks a bargain.

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Warranstar 26th May '15 26 of 27
1

I just bought some after putting it through my analysis.

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Beginner 27th May '15 27 of 27

In reply to herbie47, post #25

Order in!

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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