Earlier in the month I talked about online clothing company ASOS (ASC) here with the view that the smart view was to take some profits on the prevailing £52+ share price. After all, the valuation was high and the company admitted it was worried about some shift back later this year to peers with online and actual stores. There is, perhaps, a solution. A latest announcement noted that ASOS 'confirms that it is in exclusive discussions with the Administrators of Arcadia over the acquisition of the Topshop, Topman, Miss Selfridge and HIIT brands...Any acquisition would be funded from cash reserves'...
Weekend press chat was of a £250 million odd potential price, which I wait to see the full rationale on. We need to wait to see whether it completes the deal or not, but I think the aim is to try to counter some of the challenges talked about earlier in the month. Do you fix a problem by buying assets in a sector in long term decline with soiled brands? For me, I am still waiting for nearer a £40 share price to buy this one and hence at circa £50 I remain a seller.
Peer Boohoo (BOO) has also been in the news, with the announcement it is spending £55 million (still leaving Boohoo with about £400 million of free cash) on the online Debenham’s business. Unlike potentially with ASOS, Boohoo clearly has no interest in the traditional store options and - in any case - the online business at Debenham’s ran at a sales level of about £400 million over the last year. Well that is a bit different from the underlying Boohoo valuation, where a £4.4 billion market cap is x2.5 sales and a nearly x40 PE (when it publishes its full year to March 2021 profits in May). You can guess the basic angle. Boohoo talks about a lot of historic customers (6 million names apparently in the UK) and exposure to beauty, fashion, skincare and makeup products that are purchased still by many. Yes, much of Debenham’s online business involves deals with other corporate operators, but it is the amount of people - many of whom will be of an older profile than the typical Boohoo purchaser - which give a new and different value. Certainly at a purchase price of less than x0.15 of historic sales, the Boohoo team unsurprisingly sees upside.
I see Boohoo shares are back above 345p again and history tells us that the stock has been between 350-400p quite a few times in the last year except when hit by Black swans from left field as discussed by Tom HERE. All you can say though is that the management team at Boohoo continues to grow assets at its core clothing business (ten month sales up 42% etc. led by the US to complement the strong historic UK position). Personally, I would not buy the stock here but the small punt on Debenham’s online alone is more likely to be a small benefit rather than a failure at a very limited price. And if we did not know it already, the shop owners are changing. You can bet that any Debenham’s online workers are absolutely delighted by the news.
Filed under: Boohoo, ASOS, Rutherford Health, Anglo Asian Mining, Itaconix, Iconic Labs, TomWinnifrith.com
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