BoA Merrill Lynch starts Boohoo at 'buy', notes three pillars of success

The bank said Boohoo offers exposure to three important structural trends in apparel: a shift to online; consumer demand for value; and a move from fast to faster fashion, owing notably to the strong sourcing background of its founders.

Merrill noted that group revenue has grown fourfold the past four years and said it expects revenue to triple again in the next five years, making it the fastest-growing company in its coverage.

It pointed out that Boohoo trades on 27x 2019E EV/EBIT, a discount of around 20% discount to online peers, which it reckons is unjustified considering its superior business model and growth profile.

"In addition, boohoo only trades at a 40% premium to traditional retailers who are significantly more challenged given increased fragmentation aided by social media & e-commerce and margin pressure as sales shift online.

"In the medium term, we see scope for Boohoo to become an acquirer of small online brands, which would present incremental upside to our earnings and valuation," Merrill said.

At 1300 BST, the shares were up 2.3% to 222.30p.