PauL Scott - Small Cap Value Report - COMMENTS8 Feb 2021 08:57
I don't think the stock market has yet grasped how significant this deal, and the acquisition of Debenhams are going to be for BOO. It greatly expands the group's demographics, and should see a step-change in scale of the group once these new brands are absorbed into the BooHoo machine.
Therefore, over time, I reckon we should see large increases in forecast revenues & profits.
Remember that these brands were already trading online. In the case of Debenhams, the annual online revenues were about £400m, or £300m if we take off click & collect in-store. Put that on BOO's usual 10% EBITDA margin, and it's a potentially £30m boost to profits. Add onto that the growth that BOO's expertise in product & marketing should bring, and the £55m acquisition price for DEB could end up looking a remarkable bargain.
Ditto with the 3 additional brands acquired today. At the end of today's announcement, it refers to revenues of £178.8m for the "continuing businesses" for FY 08/2020. Presumably that means online sales, as that's the continuing business. That's equivalent to an additional 14% revenues on BooHoo group's £1,235m revenues for its FY 02/2020. Add that on to the c.£300m additional revenues bought in from DEB, and we're looking at £479m of additional, annual revenues bought in. That's assuming under BooHoo ownership the 4 new brands just match historic online revenues. In practise, I suggest they'll be aiming to grow the historic revenues, aggressively.
Once all this starts to feed into analyst forecasts, I think we could see a big re-rating of the shares, to reflect a much faster growth rate.
Online sales tax - this is a potential negative for all online retailers. Press reports suggest that the Govt might be succumbing to muddle-headed thinking, that online retailers have a cost advantage by not paying much in business rates.
This is complete nonsense, since it isolates just one cost, whilst ignoring other differences in business models. Online retailers do pay less business rates, yes. However, they pay about the same amount (c.8% of sales) in online marketing costs that physical retailers pay in rent+rates. Physical retailers have the customers come to them - which they pay rent & rates for. Online retailers have to fund substantial online marketing costs, to draw customers to their websites. It's directly equivalent.
Also, online retailers have to fund 40-50% customers returns (two lots of packing, handling & postage costs, and all the logistics involved), whereas physical retailers enjoy a sub 10% returns rate.
When you compare the two business models in their entirety, online retailers don't have a cost advantage at all. That's why so few online retailers actually make a decent profit! Let's hope the online retailers explain this point to the Govt. The fact is that any additional taxes on online sales would just be passed on to customers.
What High Streets need more than anything, is more flexible leases, so that rental c
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