Boohoo Group – growth plan to rebuild very substantial shareholder value within the next five years
“Against the background of the unique and unprecedented set of macro-economic and market headwinds experienced over the last three years, boohoo's market capitalisation has significantly decreased, despite the strong efforts of boohoo's Executive and Senior Management.”
So, on 16th February this year, the company announced its ‘Growth Plan’, which is designed to focus on creating shareholder value through a series of distinct, stretching share price hurdles.
It is also designed to replace previous executive incentive plans, now looking to lift the group’s share price in stages up to 395p over the next five years.
Under the Plan some £175m could be paid out to various of the £698m group’s key executives, if its value tops £5bn for more than 90 days.
At the General Meeting to approve the new incentive, despite a detailed consultation exercise with a number of its larger investors, a surprising number of shareholders holding 37.39% of the equity voted against the scheme.
Executive Chairman Mahmud Kamani stated that:
"As boohoo's largest shareholder (12.6%) I wholeheartedly endorsed the Growth Plan, recognising the importance of aligning the interests of all shareholders with those of our hardworking boohoo colleagues. The value generated for shareholders would be some 25 times greater than the maximum award of the Plan, and I am therefore pleased that it is being implemented."
Founded in the heart of Manchester’s historic textile district in 2006 by Mahmud Kamani and Carol Kane, today the boohoo group (LON:BOO) has a portfolio of 13 market-leading brands, offering up to the minute clothing, shoes, accessories and beauty to its 19m customers across the globe.
With some 5000 employees, the group operates as an online clothing retailer in the UK, the rest of Europe, the US, and internationally.
Apart from having originated the boohoo and boohooMAN.com brands, the group has made several acquisitions over the last five years or so.
In 2017, the group acquired the fashion brands PrettyLittleThing and Nasty Gal.
March 2019 saw the group takeover the MissPap brand, followed five months later by the Karen Millen and Coast brands.
June 2020 was when the Warehouse and Oasis brands came into the group’s portfolio.
In January 2021, the intellectual property assets of Debenhams were purchased.
One month later, the group took over the brands of Dorothy Perkins, Wallis and Burton.
Last August 2022 the group acquired a 7.1% strategic investment in the Revolution Beauty Group (LON:REVB), whose products are sold through several of the group's direct to consumer brand websites and its online digital department store, Debenhams.
That stake was increased to 26.47% in late November last year, when Bob Holt was appointed CEO to REVB. Holt previously successfully built up the Mears and the Sureserve groups and is currently the Chairman of Totally.
There are some 1.27bn shares in issue.
Mahmud Kamani holds 12.6% of the equity, Rabia Kamani has 4.00%, and Carol Kane is a 2.63% holder.
Other large holders include Kenneth Griffin (5.53%), Camelot Capital Partners (5.10%), T Rowe Price International (4.99%), Norges Bank Investment Management (4.97%), FIL Investment Advisers (4.93%), Invesco Advisers (4.84%) and Jupiter Asset Management (4.70%).
Analyst Opinion – losses to continue
Analyst Rachel Birkett, at Zeus Capital, the group’s NOMAD and Joint Broker, has estimates out for revenues in the year to the end of February 2023 of £1.74bn (£1.98bn) with an adjusted pre-tax loss of £8.5m (£82.5m profit), collapsing to 0.48p loss per share against 4.39p in previous earnings.
The Zeus prediction for the current year is for £1.79bn sales and a similar £8.6m loss.
Conclusion – will the Plan work?
The group will be announcing its results for the year to end February 2023 on 16 May.
Despite the exciting Growth Plan, the market still questions the real value of this group’s shares, which are currently trading at around the 55p level.
If the Growth Plan works progressively over the next five years, then investors could well see a massive upside from today’s price.