WHAT IS BOOHOO’S INTRINSIC VALUE? | BOOHOO DCF MODEL (BOO)
What is Boohoo’s intrinsic value / fair value? The below fundamental analysis and discounted cash flow forecast aim to help us understand if Boohoo’s stock price is a good value and a good investment.
Is Boohoo a good investment? Many factors will determine if a stock is a good investment or not; this analysis looks at the historical financials, forecasts that are based on management guidance and analysts’ projections, as well as personal assumptions. The following information is not financial advice, nor is it a recommendation to buy or sell Boohoo stock.
The data for the following analysis, including the dcf models, comes from a combination of SharePad, Finbox, and the Boohoo investor relations website. Additionally, the dcf model uses personal assumptions, which are shared below.
Table of Contents
Boohoo Fundamental Analysis
Boohoo Discounted Cash Flow Modelling
Boohoo DCF Scenario Analysis
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Boohoo Fundamental Analysis
Boohoo Income Statement
The financial data and models below are based on Boohoo’s annual reports for the fiscal year 2022, which ended on 28th February 2022. The reporting currency and below date is GBP
Boohoo Year Income Statement – 5-Year View
Boohoo 2022 Income Statement
Revenue of almost £2 billion is up 13.6% from £1.8 billion in 2021. Most of this revenue is generated in the UK at £1.2 billion.
Cost of sales increased 17.7% to £941.7 million from £800.1 million.
Operating expenses include £517 million in distribution costs and £515 in administrative costs. In addition, £35.8 million of the operating expenses are categorised as exceptional items.
Boohoo Revenue vs Margin
Revenue has continued to increase over the years. However, following a decline in EBITDA and Net Income margins in 2021, 2022 margins dropped considerably. Net income margin in 2022 finishing negative at -0.2%
Boohoo Growth
2022 has seen a significant drop in growth in revenue, gross profit, net income and EBITDA. Net income and EBITDA growth dropped so much that they declined vs 2021.
Boohoo Balance Sheet
Boohoo 2022 Balance Sheet – Assets
Inventory of £279 million is the most significant proportion of current assets and is up from £144.9 million in 2021. In addition, £262 million of inventory is for finished goods, and £17 million is returns expected back from customers.
Property plant and equipment make up the majority of non-current assets at £399 million and is up considerably from £142 million in 2021. PP&E also includes right-of-use assets of £49.7 million
Boohoo Balance Sheet – Liabilities
Accounts payable at £98 million have doubled from £48 million in 2021. Short-term borrowings include £100 million of interest-bearing loans and borrowings and £7.9 million in lease liabilities. Non-current liabilities of £72.4 million are up from 17.7 million in 2021.
Boohoo Balance Sheet – Equity
Share Captial of £12.7 million includes an additional 4.4 million shares issued under the share incentive plans. Additionally, 63,761 new ordinary shares were issued to non-executive directors as part of the annual remuneration.
Other Common Equity includes -£75.6 million EBT reserve, £31.9 million shares to be issued (PrettyLittleThing.com acquisition), £10.2 million hedging reserve and -£795.5 million of other reserves. Other reserves are predominantly made up of acquisition reserves for PrettyLittleThing.com and reorganisation reserves.
Boohoo Balance Sheet – 5-Year View
Boohoo Cash Flow Statement
Boohoo Cash From Operations
Depreciation expense includes depreciation of PP&E and amortisation of intangibles, including acquisitions of new brands. Changes in WC were mainly driven by changes in inventory from -£45.8 million in 2021 to -£134.5 million in 2022. Other activities include £26.1 million in share-based payments and £1.6 million in finance expenses.
Boohoo Cash From Financing
£7 million of common stock was issued, and £19 million of shares were repurchased over the period. £100 million of new debt was issued, with a further £225 million available on a revolving credit facility. Other financial activities include finance expenses and lease payments.
Boohoo Cash From Investing
Capex includes £32 million of intangible assets acquired and £230 million of PP&E.
Boohoo Cash Flow Statement – 5-Year View
The cash balance has risen nicely over the last few years but has taken a big hit in the latest annual statement, driven by increased spending on investments and a decrease in cash from operations.
Boohoo Discounted Cash Flow Modelling
Boohoo DCF – Model Assumptions
Boohoo DCF Assumptions
| Tax Rate | 21.0% |
| Discount Rate | 8.9% |
| Perpetual Growth Rate | 2.5% |
| EV/EBITDA Multiple | 8.4x |
| Transaction Date | 08/06/2022 |
| Fiscal Year-End | 28/02/2022 |
| Current Price | 0.78 |
| Shares Outstanding | 1,268 |
| Debt (£m) | 152 |
| Cash (£m) | 116 |
The above are the personal assumptions used in the DCF model. We also used the financial details from the 2022 fiscal year-end. Boohoo’s 2022 fiscal year was for the 12 months ending 28.02.2022.
Boohoo DCF – Base Case Scenario
Boohoo Base Case Revenue Growth Forecast
The base case scenario assumes revenue growth of 3%, 15%, 13%, 3% and 11%. These assumptions are slightly lower than the average and median of the analysts’ projections.
Boohoo Unlevered Free Cash Flow Forecast – Base Case DCF Model
Based on the assumptions above and the base case revenue growth forecast, the DCF model shows unlevered free cash flow to be negative for the next two years. This then rises to £101 million in 2027.
Boohoo Terminal Value
| EV/EBITDA Exit (£m) | 2,188 |
| Growth Exit (£m) | 1,610 |
| AVG TERMINAL VALUE (£m) | 1,899 |
Using an EBITDA exit multiple of 8.4x the terminal value is £2,188 million. If we use a perpetual growth rate of 2.% for the terminal value, we get £1,610 million. Therefore, we will use an average of £1,899 million for the terminal value in our model.
Boohoo Intrinsic Value
| Net Present Value (NPV) | |
|---|---|
| Present Value of Adjusted Unlevered Free Cash Flows | 7 |
| Present Value of Terminal Value | 1,267 |
| Total Net Present Value | 1,275 |
| Plus Cash | 102 |
| Less Debt | (152) |
| Equity Value | 1,224 |
| Shares Outstanding | 1267.6 |
| Equity Value Per Share | 0.9654 |
This model provides us with a net present value of £1,275 million, adding cash and deducting debt then gives us an equity value of £1,224 million. If we divide the equity value by the current shares outstanding we get an equity value per share of £0.965 or 97p.
Boohoo Intrinsic Value vs Market Value
Based on the current stock price of 78p, there is potentially an 18p or 23.6% upside to the intrinsic value of 97p.
Boohoo IRR – Base Case Scenario
Boohoo Investment – Internal Rate of Return (IRR)
| Market Value | |
|---|---|
| Market Cap (£m) | 990 |
| Plus Debt (£m) | 152 |
| Less Cash (£m) | (102) |
| Enterprise Value (£m) | 1,040 |
If we take the current market cap, add debt and subtract cash, we get an enterprise value of £1,040 million. We can then use this to calculate the IRR.
| Investor IRR | ||||||
|---|---|---|---|---|---|---|
| Date | 08/06/22 | 28/02/23 | 28/02/24 | 28/02/25 | 28/02/26 | 28/02/27 |
| Investment Amount | (1,040) | 0 | 0 | 0 | 0 | 0 |
| Transaction / Adjusted Unlevered Free Cash Flow | 0 | (53) | (88) | 19 | 68 | 2,000 |
| Transaction Cash Flows | (1,040) | (53) | (88) | 19 | 68 | 2,000 |
| IRR | 13.4% |
Based on the initial investment and the cash flows, we get an IRR of 13.4%
If the stock price drops 20% to 62p per share, we will get an IRR of 18.2% based on this model. If the stock price increase by 20% to 94p, we would get an IRR of 9.6%.
Boohoo DCF Model – Scenario Analysis
Boohoo DCF – Bear Case Scenario
Boohoo Revenue Growth Forecast – Bear Case
For the bear case scenario, we have set the revenue growth to be 0% this year, followed by 3%, 6%, 7% and 10%. This is slightly less than the lowest analysts’ projections.
Boohoo Bear Case Unlevered Free Cash Flow Forecast
Using the above assumptions and the bear case revenue forecast, we have negative unlevered free cash flow for the next three years, but then rising to £83 million in 2027.
Boohoo Intrinsic Value vs Market Value – Bear Case
The intrinsic value per share for the bear case scenario is 75p. This means there is a 3p or 3.5% downside verse the market value (at the time of analysis).
Boohoo IRR – Bear Case
The base case scenario provides an IRR of 8.3% at the current market price of 78p. This is lower than our calculated cost of capital. If the stock price reduces 20% to 62p, then the IRR would be 12.7%
Boohoo DCF – Bull Case Scenario
Boohoo Revenue Growth Forecast – Bull Case
The bull case has revenue growth of 8% through 2022 (2023 fiscal year), followed by 20%, 15%, 13% and 13%. This forecast is slightly lower than the top end of the analysts’ projections.
Boohoo Unlevered Free Cash Flow – Bull Case
The bull case unlevered free cash flow forecast is negative for the next two years but then increases to £159 million by 2027.
Boohoo Intrinsic Value vs Market Value – Bull Case
The bull case scenario provides much more upside based on the current stock price of 78p. Based on the bull case forecast, the intrinsic value per share is £1.53, providing 75p or 96% upside.
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Disclosure
I/we have open long positions in Boohoo. I/we do not intend to make any changes to our position in the coming weeks but have the right to do so if situations change or further information becomes available.
This analysis has been written by a Bull Headed Bear analyst/author for Bull-Headed-Bear.com. I/we receive no compensation for this post other than any payments received from ads or affiliate links.
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