BooHoo and AA

Archived article

Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

“It is a mixed day on the markets with a flat performance in the UK and Europe and a weak day in India, although Hong Kong bucks the trend with a strong day on the Hang Seng index (up 1.3%). The London market doesn’t have any clear patterns with none of the big sector constituents moving in unison. “In early trading, the best performer on the FTSE 100 was chemicals group Croda, up 1.6%. Gold miner Randgold Resources was the worst performer, reversing yesterday’s gains as traders speculate about whether there could be better terms for its mooted merger with Barrick Gold,” says Russ Mould, Investment Director at AJ Bell.

BooHoo

“Anyone worried about BooHoo not being able to sustain a strong pace of growth should be relieved by the impressive sales figures in its latest half year results.

“Also helping to quash any fears about momentum in the business is the fact that its overseas operations now account for 41% of group revenue. This suggests BooHoo is striking a chord with people in different markets and has the right ingredients to truly become a global business.

“Last week’s appointment of a new CEO represents a pivotal moment for BooHoo, bringing in John Lyttle from Primark early next year. His job is to ensure the business, founded 12 years ago in Manchester and which now has more than 11 million customer accounts, continues to mop up more market share and potentially plants flags in new territories.

“The company is certainly in a very strong financial position to drive strategic growth. BooHoo has a robust balance sheet with £156m of net cash, plus strong operating cash flow generation.

“A controlling stake in Pretty Little Thing was acquired in December 2016 and now accounts for 60% of BooHoo’s group revenue.

“One of Lyttle’s first tasks must surely be to buy the remaining 33% stake in Pretty Little Thing it doesn’t own, where it has an option that expires in February 2020.

“Analysts reckon the brand and its operations could be worth £1.15bn, so BooHoo is looking at £380m potential cost to buy the remaining stake.”

AA

“Though profit fell sharply in the first half results, the extremely negative share price reaction facing roadside assistance provider AA likely reflects a build-up of shareholder frustration with the group’s patchy track record since its 2014 IPO.

“The company essentially blamed too much demand for a fall in first half earnings. A ‘pothole epidemic’ caused by the extremely cold weather in the UK in early 2018 meant call-outs were at a 15-year high and AA had to pay third party garages to accommodate the extra broken-down vehicles.

“Otherwise there were some more encouraging features to these results, with strong cash conversion and revenue heading in the right direction, but the company’s debt levels, which remain elevated despite July’s refinancing, probably makes investors less willing to give it the benefit of the doubt.

“If the share price remains weak the company could be vulnerable to a bid from private equity, which might be more comfortable with the level of indebtedness.”

These articles are for information purposes only and are not a personal recommendation or advice.