Boohoo.com
PBT £6.27m Dividend nil
I suspect Charli XCX may not mean much to most readers of this column, but the singer-songwriter has a following of 2.5 million Facebook fans and is very popular with the sort of youngsters who buy their clothes online from boohoo.com. She is the latest such celebrity to be hired to promote the company.
It is the loyalty of this customer base and the company’s ability to reach them by means of social media that goes some way — only some way — to justifying the multiple at which the shares trade. This multiple was considerably higher when the company floated on the Alternative Investment Market in March last year at 50p.
A profit warning in January blamed the previous warm autumn, which forced competitors to discount heavily, and the shares tumbled. They rose ¼p to 33¼p on halfway figures to the end of August that show that the business is picking up pace again. Revenues grew by 35 per cent across the group and 32 per cent in the UK, which is two thirds of the business, in the second quarter, accelerating from 27 per cent in the first.
Such growth is what attracted investors to the stock in the first place, while raising among sceptics painful memories of the dot-com boom and bust. Encouragingly, the conversion rate of the number of hits on the website to sales rose from 3.5 per cent to 3.8 per cent, despite an increasing amount of the traffic coming on mobile phones, where conversion rates tend to be lower.
Boohoo has extended its Burnley warehouse and this can be expanded further. The company is also trying to sell its products through other websites, such as Asos.
It has a very small position in the American market and there is some recovery in Australia, where the weakness of the dollar had forced it to put up prices. Boohoo sought permission to buy out its shares in the spring, when they were at their lowest ebb, but nothing came of this and the company reckons it will need the £60.4 million it has in the bank to fund further expansion.
Pre-tax profits were up 39 per cent to £6.27 million. The shares sell on more than 30 times’ earnings. I find this hard to justify even at the present growth rate, because a “buy” would require the investor to take a very long-term view. Still, I’d never heard of Charli XCX, either.
My advice Avoid for now
Why Boohoo has a strong position in a key demographic and the ability to increase revenues sharply, but it is still hard to justify that multiple
Mitie Group
Revenues secured this year 94%
Shares in Mitie have been held back by fears over the impact of the national living wage and concerns that there will be more writedowns from its exit from construction. Those concerns now look overdone.
On the living wage, which would seem to affect the entire outsourcing market, where many staff in areas such as care and security are on low wages, but will improve staff retention, the company believes its contractual arrangements with clients are robust enough to pass on the added cost. Mitie also says — and it would, really — that it only seeks work that allows staff to be paid a decent wage rather than indulging in a “chase to the bottom”.
There were, as signalled, no further writedowns from construction, now entirely exited. The homecare side, though small, providing services in people’s homes, also has been a concern in the past because of low margins, but the company has picked up two contracts with London boroughs that will be paying the London living wage of £9.15 an hour.
The shares added 6½p to 294p but still sell on 12 times’ earnings with a yield ahead of 4 per cent, which looks like decent value.
My advice Buy long term
Why Worries that have held back shares seem overdone
Wolseley
Expected sales growth first half 4%
These are very frightened and very frightening markets, indeed. A casual reading of Wolseley’s results to the end of July would suggest that all is progressing well at the world’s biggest provider of plumbing and heating supplies.
Like-for-like sales growth is ahead by more than 7 per cent — and by almost 10 per cent at the US operation, which is three quarters of the group. Margins are up to a record 8.2 per cent at Ferguson in the United States.
Yet the shares tumbled by 12.5 per cent, down 523p to £36.56 at the close. Search through the guidance statement and there are two areas of concern. In the UK, where Wolseley concentrates on boilers and heating, the market has flattened off after earlier government initiatives to get people to install more eco-friendly central heating. In the US, industrial sales, about 15 per cent of that 75 per cent of group turnover, are stalling. The quarterly growth trend in American sales slowed as the year progressed, while the fourth-quarter figures across the group undershot expectations.
This means that now Wolseley is forecasting growth of 4 per cent in the first half of this financial year, down from an expected 6 per cent previously.
It’s not exactly the end of the world, is it? That share price fall looks like an overreaction. The shares have outperformed the market in recent weeks and have not suffered the markdowns noticeable elsewhere, which may have something to do with it. On less than 15 times earnings, they look like good value again.
My advice Buy
Why Share price fall looks well overdone
And finally . . .
I have highlighted the attraction of quoted funds such as 3i Infrastructure before, but there are signs that the supply of appropriate investments in the UK, offering a good yield to support dividends, is drying up as multiple buyers chase the same assets. In a market that it describes as “competitive”, 3i made three investments in the first half to the end of September, but two were on the Continent. We are told not to make too much of this, though, and the fund still offers a 4.4 per cent dividend yield.
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