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First off, Ashley is a retail genius, he turned Frasers around, he’s pumped in £100M between ASOS & BOO and he probably has to do another £150M to £200M min to get 29.99% of both
IF his plan was to merge
He doesn’t need to pay £20 for ASOS he just builds his stake as when the market drops the price of both companies as he is doing today
If he does go to joint 29.99% and a merger was his game plan
there will be a commercial/ enterprise value placed on both businesses including debt - Combined debt could be £300M plus by then maybe ?
The whole could be worth more than the 2 parts so to speak due to cost cutting and with Ashley driving the merger there is a good chance he could raise the money to pay off debt / working cap
Not a guarantee that the above will happen but commercially it’s a possibility
The above becomes a problem for the shorts in both businesses as MA as he is doing will take the opposite side of their trade
Would the market put a higher value on Ashley succeeding over Boo management team and ditto ASOS? Suggest they might
Is Ashley going to 29.99%?
Does a Rev B on Boo?
Takes the BoD from the inside, he does the same with ASOS and merges both business’s ,restructures the lot, cuts out duplication , raises funds to clear the debt / working cap ?
Frasers access the USA/U.K. automated fulfilment centres as well as the new enlarged group ,assuming the former is completed and he gets Debenhams marketplace as well
Debenhams Middle East gets him into MENA region
As Money Sponge infers he’s got loads of $$$ and is wired differently to us peeps, could be wrong with above but it’s looking that way?
Short term it’s how much will he pay to get to 29.99% ?
He could have a £5B on line business
PDS, it’s pointless debating with PP/ Pedro
Boo ain’t going bust, however we can all see it could benefit with MA being on the BoD / influencing
Squeeze the margin to 6% and we are where we are with the revenue
Finance the £135M real estate to keep trade insurance happy as Bank debt will climb to £60M to £75M next February
Forecast to be £140M year after - suggest this deters the Shorts who assume a fund raise will be required
Slash marketing budget in line with peers to 5%
But complete automation of USA 24/25 - a must
Lots to do but Boo ain’t a zero
‘Our FY24E EBITDA is based on:
17% decline in LFL sales (c.28% contribution margin) – in line with H1.
Gross cost savings of £80m (first part of £125m announced in the H1 FY24
interims) offset by some reinvestment to give a net £68m.
2% fixed cost growth.
4% marketing reduction (inline H1). Our FY25E EBITDA is based on:
A LFL sales decline of 5% (c.30% contribution margin).
Gross cost savings of £45m (offset by some reinvestment) to give a net £40m benefit.
2% fixed cost growth.
10% marketing increase due to the new US distribution centre’
Contd
‘We estimate group CAC has already risen to £26-27 per customer (Boohoo doesn’t disclose CAC) and this includes the UK, where CAC will be lower due to the strong brand, market position and high sales retention (i.e. low customer churn). Therefore, US CAC will likely be materially higher than the UK and the company will need to accelerate marketing to build brand and communicate the new delivery proposition, which could result in margin pressure.
On top of this, sales retention for the International division (EU, US, ROW) is low at an implied 44% (i.e. 56% of revenue churns each year) and assuming this is the same figure for the US, this implies customers stay for an average of just under two years. We attempt to analyse the potential LTV/CAC in the US, using the information Boohoo has previously disclosed and our own scenario analysis:
US scenario one: Using International sales retention of 44% and using the group customer economics, LTV/CAC would be as low as 1.5x – effectively uneconomic to spend on marketing, being highly margin dilutive.
US scenario two: Assuming the US sales retention improves with the new distribution centre and shorter deliver times to the group average in H1 FY23 of 73% and using the group customer economics, LTV/CAC would improve to 3.0x – making marketing more efficient and limiting margins.
US scenario three: Assuming the US sales retention improves to the UK figure in H1 FY23 of 91% post the new distribution centre and using group customer economics, LTV/CAC would improve to 9.0x – making marketing highly efficient and the potential to recover margins highly likely.
Based on our analysis, unless customer economics improve materially (i.e. towards the UK), we believe any US growth could be margin dilutive and potentially put Boohoo in an ever worse position. Further challenges to accelerating US growth and improving customer economics will be the competitive environment, namely Shein, and the weakening macro environment and a likely lower contribution margin (than the group average) as the new distribution centre in Atlanta is manually operated and not automated like the Sheffield distribution centre in the UK. Therefore, as it stands today, in our view, it remains uncertain whether Boohoo can return to growth’
Hi Jeremy
Tbf to the Analyst his report on Boo is very data driven, I felt compelled to purchase it this week, makes for an interesting read
Btw I would prefer to consider the opposite side to my trade this way than the likes of PP/ Pedro who are apparently not invested in Boo but spend all day / night posting on a stock they have no trade in?
Couple of snippets that I thought interesting to the BB ;
‘Boohoo is now spending more on marketing than any other listed peer (+600bps over eight years), while the recent sales performance has been the worst of all European listed eCommerce peers. Active customers are declining, while the marketing to sales ratio hit an all-time high of 12.3% in H1 FY23 and is likely to go higher with the new US distribution centre (opened in August 2023). We estimate Boohoo has seen CAC more than double in the last five years and given the low AOV this potentially puts significant pressure on growth and margins’
Some thoughts
Without Big Mike buying this week think we can say the share price would be lower today as the Shorts have doubled down
Do we drop back now whilst MM’s pick up shares again at the price MA is prepared to pay with their margin and we get a repeat of the past few months at 32p to 35p but 27p to 31p TR1 … repeat ?
No need for MA to bid for the business ,he can take his stake to 29.99% on the cheap -in his head -and maybe take seats on the BoD ?
He gets a look under the bonnet same time?
Point being, can’t see us hitting the sub 25p range unless Boo put out a bad TU but can we see any update until the New Year?Mike nibbles away until he hits the 29.99% and he gets a better understanding of the business from the inside ?
How we play out the next few months ?
Hex,
Let’s hope trade insurance providers to Boo suppliers have VAR switched off and don’t get spooked by negative Bank debt of £60M to £70M come year end.
It might be needs must for Boo to finance the head office?
Nb have you seen the Canacorred report mentioned on other posts today?
Hex, it’s good to have you on the BB to discuss this stuff helps us all
I went off the headline £12M outflow first thing yesterday but working on actual negative cash Boo including EBT it was £41M
No idea how EBT is not a cost above the line btw but that’s another conversation
EBITDA is just a line in the sand / benchmark to work from really
Hex
Just back to net debt year end
Your calc on cash burn yesterday was on the mark, including EBT totalled £41M
Assume EBT doesnt reoccur H2,(£15M) we can say £25M cash burn H1 that should continue H2?
If that’s the case
If Boo hit £60M EBITDA for full year and capex is £40M H2 as per their forecast they have £65M cash out vs £30M in
If bank debt is £35M today it takes bank debt to £70M year end
That assumes they can stock up USA without increasing £inventory from current position
What’s your view on above ? Am I missing anything ?
Good chat Hex/Reardon/Broke
The bum note for me yesterday the fact they only retained .75% from capturing inflation / cost cutting and in effect as Hex says they put it all back into price cutting.
I thought they would have nicked more, even 1.9% would have seen us at 5.5% and the revised business model would have been deemed on the right path.
So year end we have £60M EBITDA and quite possibly £60M to £75M of banking debt
To move the share price up Boo need a capital event, be that an MBO - although Debt isn’t in their DNA they heading to a debt balance either way -
Or quietly put the business on the block for a sale, it would be attractive to Shein, offering them U.K./ Europe / USA distribution network in one swoop
Any views on above? What’s the odds on either ? Can’t see a material jump in the share price after yesterday so we need that capital event ?
Hi T4G
Not saying 100% but a capital event ‘ to create shareholder value be that spin off Debenhams marketplace or Boo receives a bid / MBO
Possibilities not a certainty, so what’s the risk/reward for II Shorts, Boo ain’t a £zero, what’s the price they exit ?
Tbf they called this one spot on from £4 but when do they take profits? Until they do or a capital event we are were we are so to speak, we just find a new -probably -tight range whatever that is ?
Think we can say the II Shorts may well have reached the view yesterday that the risk / reward is not worth holding out for a few pence more, Boo EBT and MA may well add this week who knows but we can say Boo ain’t a zero so when do they exit ? Plus suggest Boo is now exposed for the next 6 months at least to a capital event one way or another ,not sure what the latter percentage risk is but it has to be a possibility.