Online fashion retailer Boohoo (BOO) has defied the sector slowdown once again, with shares surging after an upbeat trading update. The firm's fortunes contrast sharply with bricks-and-mortar retailer Ted Baker, whose shares hit a 10-year low on Monday after admitting an accounting error.
Boohoo has been one of the most high-profile names on the Alternative Investment Market (Aim) in recent years and its shares have hit record highs of 315p in the past week. The company, which recently acquired fashion brands Karen Millen, Coast, and MissPap, is backed by a number of top-rated UK fund managers.
Boohoo makes up 9% of the Silver-Rated Merian UK Mid Cap and is also held by Bronze-rated Merian UK Smaller Companies Focus, run by Nick Williamson, and the 5-star rated Merian UK Dynamic Equity, which has returned 23% so far this year. In total, Merian funds hold just under 16% of Boohoo, just behind founder Mahmud Abdullah Kamani, who remains group executive chairman. Other major shareholders include Baillie Gifford, which owns 8% of the firm, while Standard Life Aberdeen has just over 4%, according to Morningstar data.
Hargreaves Lansdown equity analyst Nicholas Hyett says the acquisition of upscale fashion brands Karen Millen and Coast is a calculated risk because they serve a different market to Boohoo’s usual brands: “These more mature brands are a bit of departure for the group – which has been squarely aimed at teenagers. It’s a potentially lucrative market if the group can crack it.”
At the time of full-year results, Boohoo’s price-to-earnings multiple (PE) – a measure of how investors expect the company to grow – stood at 52, which means that the share price is 52 times its profits. It has since risen to an eye-watering 79 times. For context, the average PE on the FTSE All Share is around 17 times.
Helal Miah, investment research analyst at The Share Centre, said at the time of the firm's full-year results that while the valuation “may look lofty on a standalone basis, it compares favourably to its peers and in our view is justified by the long term growth potential”.
In contrast, fashion firm Ted Baker (TED) was forced into an embarrassing admission on Monday that it had overstated the value of its stock by £25 million. Its shares plunged 20% at the market open after the statement to the stock exchange, a 10-year low, but have since mounted a recovery. The fashion retailer has had a difficult year – founder and chief executive Ray Kelvin resigned in the spring amid criticisms of his conduct. Kelvin still owns 35% of the company which he founded in 1988.
Rceent half-year results to August 10 showed the company made a loss of £23 million in the period, against a profit of £24.5 million in the same six months of 2018.
More than 1% of Ted Baker's shares are in the hands of short-sellers, firms that bet on a fall in company share prices. According to the FCA's daily register, GLG Partners and Squarepoint hold short positions in the retailer's shares.
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