RBC Capital ups Boohoo target price after 'solid' FY results

The bank said the profit beat and reiteration of mid-term guidance was a reassuring message following share price underperformance. However, the FY19 adjusted EBITDA margin guidance is less compelling after subtracting dual running costs related to the PrettyLittleThing warehouse relocation that are being recognised as "exceptional".

RBC kept is 'underperform' rating on the stock as it said the margin outlook remains unchanged.

The bank said Boohoo's valuation reflects expectations of continued superior levels of growth that it doesn't see happening without additional margin investment, as industry peers have shown.

"We believe Boohoo needs to invest further in establishing defendable competitive moats. We therefore anticipate a margin re-set driven by price investments, rising customer acquisition costs and enhancements to enhance the proposition, particularly around delivery, where Boohoo is less competitive than its peers."

Boohoo shares surged on Wednesday after it said full-year sales nearly doubled and pre-tax profit rose 40%, while hailing an "exceptional" performance from PrettyLittleThing and a strong start to the current financial year.

In the year ended 28 February 2018, revenue increased 97% to £579.8m, while pre-tax profit came in at £43.3m versus £30.9m the year before. Adjusted earnings before interest, tax depreciation and amortisation were up 61% to £56.9m and net cash at year end stood at £133m versus £58.4m in 2017.

Revenue at Boohoo was up 32% to £374.1m, while Nasty Gal's revenues were £24.4m since the start-up in 2017, but it was PrettyLittleThing that stood out, with revenue up a whopping 228% to £181.3m and customer numbers 128% higher than the previous year.

At 1035 BST, the shares were up 1.3% to 182.15p.