Peel Hunt has upgraded its forecasts for online fashion retailer boohoo (LON: BOO) in its latest note thanks to the continued growth of the boohoo brand.
Pre-tax profit is forecast to increase from £76.3m to £93.9m – a 6% upgrade – this year, on revenues of £1.19bn, and the cash pile could be in excess of £220m by the end of February 2020. That is after spending £60m on warehouses and other capital investment, which is more than any previous year.
Changes in the accounting for leases is responsible for a significant chunk of that profit upgrade, but that does not affect the cash position.
This forecast assumes 38% growth in revenues in 2019-20, which is well above the guidance of 25%-30%. The boohoo brand, which is more mature, is expected to grow revenues by 19%, up from 15% previously.
Gross margins have held up well at boohoo and the automation of the Burnley warehouse will help efficiency.
The other online retail brands are motoring ahead, as well. PrettyLittleThing is still a major growth brand and it will start to benefit from its new warehouse facilities. This brand’s revenues are set to grow by 54%.
The Nasty Gal growth rate estimate is upgraded from 75% to 90%. This year’s forecast also includes a £10m revenues contribution from recent acquisition Miss Pap.
The group has enough warehouse capacity to cope with £3bn annual revenues. That is likely to be achieved by 2023-24. That is not far away so capital investment will need to remain high.
Warehousing outside the UK is the next step. The US is an obvious candidate and boohoo needs to learn from the mistakes of ASOS.
Peel Hunt’s forecasts are ahead of consensus, but they have tended to be in recent times. They have also tended to be reasonably accurate. At 243.7p a share, boohoo is still trading on 45 times prospective 2019-20 earnings, falling to 37 next year.