‘Worst is over for boohoo’ as analysts shift from Hold to Buy

Fast fashion retailer Boohoo

Analysts at investment bank Panmure Gordon have shifted their recommendation on Manchester online retailer boohoo following its results announcement earlier this week that revealed a £91m pre-tax loss.

The update also revealed an 11% reduction in sales, of £1.769bn which it blamed on “COVID-related cost pressures on raw materials and freight, and stock clearance”.

It was felt that group CEO, John Lyttle, had attempted to paint the results as a long term recovery, highlighting the market share figures and progress on a recovery plan in readiness for a recovery.

These include new wholesale partnerships in the UK, Europe, the Middle East and India and investment in a US distribution centre.

His bullish outlook has hit the mark with Panmure Gordon.

Analysts Tony Shiret and Georgia Pettman revealed today (May 19) that they have upgraded their advice on boohoo’s stock from ‘Hold’ to ‘Buy’.

They explained: “The boohoo prelims gave evidence of control and stabilisation which now prompt us to dismount from the fence.

“Boohoo has never, in our view, been very transparent on its buying model. But the company’s conviction that it is now able to return to a full-on test-and-repeat buying model should allow it to function properly as a sales driving machine.

“Additionally, the new US distribution centre will be absolutely key for moving the US sales onto a higher level.”

They add: “Much of the focus on the day was on the lack of surprise and the cashflow/working capital control.

“But we are now thinking more about the medium/longer term prospects as boohoo can work against a much more favourable supply chain backdrop where previously it struggled with both (linked) demand and supply issues.

“This said, near term trade remains weak, there is clear execution risk with the US DC and the company’s view of recovered EBITDA margin prospects at 6-8% looks some way below historic levels.

“But we think the worst is over here and boohoo has protection from demand pressures from its ability to invest falling input costs into price. Our DCF (discounted cash flow) supports an increased target price of 70p (+17%).”