After a bruising 35% share price slide since last November, Boohoo Group PLC's (AIM:BOO) battered equity is no longer a sell, says Shore Capital, which has upgraded the online fashion group to ‘Hold’ as its Debenhams pivot begins to show early signs of promise.
The rebrand to Debenhams Group is now central to the online retailer's strategy.
Though it still only accounts for 17% of group revenue, ShoreCap said it is one of the few areas delivering growth, in stark contrast to continued declines at Youth brands and Karen Millen.
Analysts called the marketplace model underpinning Debenhams “sensible,” pointing to management’s target for 20% EBITDA margins over the medium term, versus low- to mid-single digits elsewhere in the portfolio.
Risk/reward rebalancing
The update came in a note published on Wednesday, in which ShoreCap analysts Katie Cousins and Clive Black argued the risk/reward balance had “tipped” back toward neutral territory following recent losses.
Boohoo shares are now trading closer to industry average multiples and well below the firm’s 21p fair value estimate. The stock closed at 20p on Tuesday, valuing the group at £277 million.
Even so, ShoreCap stressed that this isn’t yet a buying opportunity. The latest trading update was “weak,” they said, with a 16% year-on-year revenue decline and £40 million of adjusted EBITDA, both below expectations.
Forecasts have been trimmed again, and the analysts now assume only low-single-digit revenue growth and modest margin expansion over the next three years.
Boohoo’s move to scrap its US distribution centre, written off less than two years after it opened, underlines the challenges in international markets.
US sentiment dented
The group has shifted fulfilment to its Sheffield warehouse and is trialling new sales channels, including Nasty Gal pop-ups in Nordstrom.
Around 20% of FY24 revenue came from the US, which remains a key market but one where ShoreCap notes sentiment has been dented by Donald Trump’s new tariffs.
ShoreCap was also cautious on the wider consumer backdrop, with inflation and interest rates continuing to weigh on discretionary spend.
While March’s warm weather gave clothing sales a short-term boost, the analysts want to see sustained momentum before changing their long-term stance.
Still, the upgrade marks a small turning point for Boohoo, and for investors worn down by profit warnings and strategic u-turns, it suggests that, for now at least, the bleeding may have stopped.