Boohoo: AIM’s largest company just got much bigger

Up over 200% since its March nadir, it seems the online fashion giant can do no wrong.

Boohoo (LSE:BOO) received more upgrades from an admiring City today after an “incredible” lockdown sales performance was accompanied by the acquisition of two well-known brands.

Shares in the AIM-listed fast fashion stock jumped another 9% to 425p, extending the gains seen since mid-March to a stunning 170%.

The latest charge follows an update in which first-quarter sales jumped 45% for the three months to 31 May, which was better than the 39% growth seen last year and the consensus expectations for a figure between 10% and 20%.

Analysts at Liberum called it a “blowout” quarter, and said the company now looked to be the pre-eminent leader in UK womenswear after it extended its stable of brands to nine with the acquisition of the online businesses of Oasis and Warehouse for £5.25 million.

Liberum upped its price target to 500p and noted the company still had £350 million of cash for further M&A, having raised £200 million from investors in a placing at 340p a share last month.

Peel Hunt, which increased its price target to 475p, called the trading statement incredible and said the figures implied 70% sales growth towards the end of the quarter. They said:

“Boohoo has demonstrated a high level of customer engagement and operational excellence”.

Source: TradingView. Past performance is not a guide to future performance.

The broker added that the Warehouse and Oasis acquisition represented more than just another £300 million-plus brand for the stable, given that it filled a price and demographic hole between the core Boohoo brands and Karen Millen and Coast at the higher end.

Peel Hunt said:

“In terms of positioning, these brands sit well against Top Shop and Zara and will allow Boohoo to continue to cultivate a slightly older demographic at mid-market pricing.”

Having benefited from the closure of bricks-and-mortar competitors during the lockdown, Boohoo warned that it was braced for a period of uncertainty from ongoing consumer caution and a likely surge in promotional intensity as more retailers re-start operations.

It said revenues growth was still expected to be about 25% higher for the financial year, with an adjusted margin in line with longer-term guidance at between 9.5% and 10%.

Today's gross margin of 55.6% was the highest recorded by Boohoo since 2016, having improved by an unexpected 60 basis points in the quarter due to limited reliance on markdowns and through the benefits of a responsive supply chain.

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Analysts at Bernstein said:

“Though we expect this number to moderate through the year as the sector gets more promotional, it is a strong indication of the efficiency of the business model.”

Boohoo shares are now trading on a lofty 2021 price/earnings multiple of 38.3 times, according to Liberum forecasts. Its trading performance will have increased the pressure on rival ASOS (LSE:ASC), which is due to report its sales figures on 23 July. ASOS shares have also staged a stunning recovery since plummeting to as low as 1,050p in mid-March, from 3,541p just a month earlier.

ASOS stood 7% higher at 3,253p today after the favourable read-across from the Boohoo trading statement. ASOS also boosted its firepower in April after a £247 million fundraising was four-times oversubscribed by existing institutional shareholders at a price of 1,560p.

Elsewhere on AIM today, shares in Best of the Best (LSE:BOTB) jumped another 18% to 1,470p after the online competitions business said it had been the subject of takeover approaches.

The “very preliminary expressions of interest” were received in the wake of Monday's annual results, when the company revealed it doubled its annual profits to a better-than-expected £4.2 million.

It is now a fully digital business focused on Dream Car and Lifestyle competitions after ending its historic presence in airports and retail sites in order to boost operating margins and capital efficiency. Shares stood at 820p prior to Monday's results.