Shore Capital has upgraded Boohoo Group PLC (AIM:DEBS), the online fashion retailer, to buy from hold with a price target of 35p, arguing that the group's turnaround strategy is beginning to deliver tangible financial progress and that gross merchant value (GMV) growth is returning for the first time in several years.
The note, written by analysts Katie Cousins and Clive Black, points to a 36% rise in full-year EBITDA to £53 million, with growth accelerating sharply in the second half, as evidence that profit recovery is ahead of schedule.
GMV returned to growth in the first quarter of the current financial year, up 0.5% year on year, with May trading running at 8% growth, supported by margin expansion, lower return rates and a significantly reduced cost base.
Central to the bull case is the pivot of the Debenhams brand towards a capital-light marketplace model, which Shore Capital believes will drive improved cash generation and capital efficiency as it scales.
The marketplace already accounts for around 32% of GMV, up from 19% a year earlier, and Shore Capital expects Debenhams to represent close to 40% of group sales and trading profit by 2028.
The bank also flags a deal struck on 12 June to sublease boohoo's 1.1 million square foot US distribution centre in Pennsylvania to ID Logistics, which removes around $100 million of remaining lease obligations and will generate around $9.5 million per year in rental income.
Shore Capital forecasts 10% EBITDA growth in the current financial year to £58.6 million and assumes modest GMV growth of around 3%.
Risks remain, however, with the Youth Brands division recording a 41% GMV decline in the first half of last year, and Shore Capital acknowledges that competition from Chinese fast fashion retailers Shein and Temu is unlikely to ease meaningfully before the abolition of the £135 de minimis import threshold, which is not expected until 2029.
The bank raises its fair value estimate from 22p to 35p, implying 43% upside from the current price of 25p.
