Member Info for danl90

@Oil we all have our own views that is what makes it a market

I'm just curious how rag knows this is undervalued although a true value is hard to know so how did he know to buy?

perhaps Oil can tell us his thoughts

I will when we understand the rational for being undervalued

Says it's impossible to call yet he put some hard earned money behind it! Is he just playing at the casino? How does he know it was undervalued when he bought? It's madness!

It's not impossible to call as you called it you bought shares at a certain price. I assume youre expecting them to go up in value?

Ok don't give me a target but just explain why you thought the shares were undervalued as that what buying shares is about

It not just "they are £2 atm but they were £4 so I reckon they are undervalued" so when you bought them why did you think they were undervalued?

Well done that's great and your view on adding brands I agree with

But how do we value this business?

ragtrade just answer the question "why is boo undervalued"

Also you'll note

Retail analyst Richard Hyman said Topshop and Topman would be “worth more” to Boohoo Group than any other buyer.

“Boohoo Group has a tried and tested model for taking on brands and injecting them into its existing online infrastructure"

Because THAT online infrastructure is our equity story! That's what drives the value

I don't disagree with any of those points re adding customers and strengthening our brand even in menswear. I never have

Just explain why you think on the current share price it is undervalued :)

Ragtrade please explain why boo is undervalued? at the moment the share price is £3.20 why is it undervalued

This isn't the case this is why different sectors trade on different multiples ie a large contracting construction business will have a lower multiple than a SaaS business even if the growth in both is the same

The reason would be that with large construction business once every project is complete you have to find a new project so why would an investor want to pay you forward for so many years profit (ie x8 etc) when you have to keep topping up the hopper? So yeah there is profit today but there is no sight of profit tomorrow

A SaaS business on an annual subscription model though can demonstrate customer stickiness ie once a piece of software is installed a customer is unlikely to leave as it becomes part of operations therefore the investor has a greater certainty of the future revenues. Therefore their KPIs would be churn, lenght of contract, upsell etc so investors would look to those KPIs.

If the SaaS business was smashing growth but churn was also rising quickly you'd see that the revenue isn't as certain as you like and the multiple would fall. So this SaaS business would be quite sharp on churn KPI

Additionally in the SaaS business you can likely keep adding new customers with little additional cost as its just software you're selling but the construction business would have to look at significant investment and ramp up every time it wanted to take on additional contracts. That would carry risk so investors would discount the multiple for the risk

Growth is good and for boo it's a top concern but how we upsell, x-sell and keep hold of customers is just as important hence why management disclose those KPIs

@Rottnest in what way am I? That I can show a clear understanding of the value drivers? The business and board literally bang on about these points on the analyst calls

Please explain why you think boo is valuable? A share price isn't just a nice number

For example on an IPO how does a share come with a value? Any idea?

Our fundamentals - please explain what you think they are

I've explained you today they are written on the boo website - no 1 is scalable platform

The KPIs are others

What do you think the fundamentals are? Just that we are hooked into a customer base? Please explain and make it tie to the multiple we trade at otherwise you haven't a clue if the share is under or over valued (which you don't tbh other than a hunch)

"Dan so your clear on how much EXIT margin wholesale makes, just about every brand under the sun has wholesale, most wouldn't survive without it" - these businesses trade on c.x8 - x12 earnings. The fact boohoo doesn't need to do this as we have a scalable platform is why we trade on x32! We don't want to be like them

Atm every £ of profit to boohoo is worth £32 of value. To the businesses you describe it is worth £8 to £12. Boo need to keep their model away from the lower value operators. Once again its not how much earnings but it's the quality of those earnings hence the huge multiple we command and that drives your share price

@Pmoran, I would let online stock our products but again limited there is nothing wrong with extra web advertising this is exactly what we want but look at boo's key KPIs (they are in every investor presentation and assessed for all brands)

Active Customers
Number of Orders
Order Frequency
Average Order Value
Items/Basket

If we wholesale too much we risk diluting these KPIs as we can't demonstrate the equity story in our value chain. Atm boo is worth x32 as the scalable platform lets us capture the customer journey end to end. It also means we can

Make the customers shop more often with us - KPI 3
We can make them spend more with us - KPI 4
We can make them buy more - KPI 5

Adding another brand ie topshop helps us add to KPIs 1 and 2 but it is how we push them down KPIs 3, 4 and 5 is why we warrant the big x32 multiple. If we lose this ability which we would via wholesale the equity story looks shaky. Does that make sense?

And no I wouldn't have any stock sat in store. Boo stuff looks cheap and nasty at the best of times imagine the image the shopper gets when its piled sky high in a US department store.

As i've just said that was 1% of turnover so the dilution is a lot less than 50% so the purity of earning prior wasn't that dissimilar

If we were then 50% wholesalers we are then a different business. 1% people can stomach and the upside is you're on three other websites so worth the trade off. That view is different when it's 50% of your business and the brand is stacked sky high gathering dust in a crusty American department store

You shouldn't own this stock or any stock if you don't know the value drivers

@Mudis - it was 1% of revenue not 50% so kind of makes a difference. Upsetting you didn't know that

In part yes and in part no

The movements in share price this year do in part relate to multiple concerns and equity story as you'll remember when the underpaid workers story was alleged a lot of concerns were put by analysts on the impact this might have on our industry leading GM% (I've pointed out to you that our huge GM% is a value driver when I was comparing to Asos. Actually our huge GM% was also one of the reason shadowfall came knocking as they thought it was too good to be true). So yes at this point in time the huge sell off was due to investors losing faith in our equity story and ability to maintain that story ie our huge GM% would fall

The growth in the shareprice in the recent days is yes due to topshop as investor believe there is revenue we can acquire here and pass through our scalable platform. The issue would if we bought topshop and didn't put it through our scalable platform as I explained in my previous post. Investors would not want boo becoming a wholesaler in any way. IT IS NOT OUR EQUITY STORY! it is not just about adding earnings it is as i've said before its about the quality of those earnings and wholesaler earnings are viewed as a lower quality than those of boo's current business model

Why would we want to achieve an acceptable multiple? we want to keep that multiple going! I've just mathematically explained to you how dangerous it would be to upset our multiple and equity story

No i'm trying to explain to your how multiple growth is better than EPS growth when you're a business like boo

Atm we trade on x32 earnings as investors believe in our scalable platform for ease lets say we make £100m profit so market cap would be £3.2 billion on the above numbers

If we were dilute our scalable platform (which is worth x32 earnings) and make it 50% wholesale (saying topshop wholesale adds £100m profit also) then
1) we are admitting our scalable platform isn't so scalable so investors will knock down the multiple so we'd trade like a regular retailer say x10 - x12
2) we would have 50% of our business where we aren't in complete control of the value chain and this part of the business would be worth what a typical wholesaler is worth maybe x8 - x10
(I pick the multiples above from a bit of googling but they feel broadly right)

So at this point the investor would get our initial £100m and x12 so worth - £1.2bln
Get the wholesale part and £100m x10 so worth £1bln

The combined lot is then worth £2.2bln which is £1bln less than where we started so yeah EPS growth but value destructive

Boo's worth is in the concept of scalable platform. To deviate from that story means we lose value particularly as we trade on such a high multiple the earnings growth will never offset it. I hope this makes sense

Its all about that multiple! :)

Thank the lord for London69!

Fantastic you calculated a top dollar number for topshop I had wrote that to see if someone would do it but thought a step too far

Yeah you don't understand our equity story. The value of boo isn't in just adding additional revenue by any means any business can do that or we'd just buy up any old thing. Each business has to have an equity story it is what draws investors to a sector and then a particular company in that sector. Housebuilders for example MJ Gleeson's equity story is cheaper affordable homes in the North. Berkeley build premium homes in London. Certain investors favor one strategy over the other so an investor might buy one or not the other or they might like both strategies and buy both. However if one of these businesses was to move into the other's section of the market it would likely be negative for the share price and valuation as it removes or blurs it's equity story. Yes both businesses are profitable and either expanding would add profits but the value of those profits would fall. So bigger business, more profitable but worth less

Boo's equity story and they have this listed as no1 on their vision and strategy section of their website is
"We have developed a unique platform, through years of investment in technology and processes, supply chain relationships and with the know-how of a great team of people. This platform enables us to penetrate markets and expand rapidly, operating multiple brands as we progress with our ambition to lead the online fashion market"

and a quote from the last investor presentation "Scalable platform for growth through further M&A" and "Acquisition and integration of the Oasis and Warehouse brands, complementary additions to the group’s scalable, multi-brand platform"

So the second boo deviates from this strategy we loose value as the equity story is gone. That is why boo would have to scrap wholesale and integrate Topshop into its "scalable platform" as that is what investor believe in. So keeping wholesale might add £100m extra profit but we trade at x32 earnings due to our "scalable platform" if we have to say our platform isn't scalable and that 50% of our profit comes from wholesale our multiple (that was the x32 number) will fall off a cliff. So yeah we'd add profit but lose value and you're a lot less likely to see your £4 target despite extra profits

This IS THE FUNDAMENTAL behind boo's equity story! yeah the customer story is important but the point of boo is it doesn't matter what brands we buy we should be able to seamlessly tuck them into our "scalable platform" and therefore maintain our industry leading 54% GM% (we shout out this on page 1 of literally every investor presentation)

Profit is only 50% of the value calculation and despite your claim of fundamentals you don't know our equity story

I really feel that way! I should just write "on it's way to £4! and £6 by next year"

@Bruce well rag trade should be able to use his understanding of fundamentals to explain why he feels it isn't