16th May 2023 17:00
(Alliance News) - Shares in boohoo Group PLC jumped on Tuesday as analysts raised earnings forecasts as an improved cash position accompanied better-than-expected full-year results.
The London-based online retailer swung to a pretax loss of GBP90.7 million in the financial year to February 28 from a profit of GBP7.8 million the previous year while revenue slipped by 11% to GBP1.77 billion from GBP1.98 billion before.
But Shore Capital analyst Eleonora Dani pointed out revenue came in ahead of the GBP1.76 million expected by the City. Adjusted earnings before interest, taxation, depreciation and amortisation reached GBP63.3 million, also surpassing the consensus of GBP62.1 million.
The retail analyst highlighted a surprising net cash position of GBP6 million at the end of the period, contrary to the consensus expectation of net debt amounting to GBP60 million.
Russ Mould at AJ Bell agreed: "The company has made real progress on its cash flow and with getting its borrowings down.
"Boohoo seems to be getting its house in order with a reduction in inventory and investments into automation and logistics. But the big unknown is how long it will take to revive growth in the business.
"Investors have fallen out of love with online retailers as growth has disappointed – so until that problem is sorted, it's hard to say if Boohoo's share price rally today is the start of something new or just a short-term, but potentially unsustainable bounce."
Shares in boohoo closed 7.5% higher at 41.31 pence in London on Tuesday.
Shore Capital's Dani is upbeat upgrading her rating to 'buy' from 'hold" seeing fair value at 54 pence per share.
Dani raised financial year 2024 Ebitda forecasts by 12% and believes "there is potential for further gains driven by margin improvements."
"Despite a recent decline in boohoo's market share, the upcoming fiscal year offers favourable year-on-year comparisons, along with a streamlined inventory and the phased launch of a US warehouse, which are expected to boost the company's prospects," she said.
Taking a less bullish view was Liberum, which reiterated a 'sell' rating.
Analysts at the broker noted medium term margins are now expected to be in the 6% to 8% range, against the historical guidance of 9% to 10%.
"This is in line with our thesis that the margin pressures on the company are structural given the changes in cost, competition (Shein) and return rates," Liberum said.
"With our forecast of negative free cash flow until financial year 2025, debt on the balance sheet, diminished prospects in its key markets and lack of visibility on the scalability of its newer brands, we believe there is better value elsewhere for now," Liberum commented.
Liberum's price target is 35p per share.
By Jeremy Cutler, Alliance News reporter
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