Liberum slashed its price target on fast-fashion retailer Boohoo on Thursday to 200.0p from 360.0p but reiterated its ‘buy’ rating, stating it was “keeping faith in the long-term story”.
The broker said Boohoo’s recent profit warning was not just a result of the global supply chain logjam but also over-optimism baked into the guidance for the second half of 2022.
“We believe the inflated supply chain costs and weakened delivery proposition will persist for the next 12-18 months, and we, therefore, cut our FY’22- 24E earnings estimates by more than 40%,” it said.
“Our view is that there will be an industry-wide permanent rebasing of supply chain costs at a higher level after the pandemic. We also believe boohoo will need to invest behind prices and marketing to recover lost ground in US and Rest of Europe.
“We therefore estimate EBITDA margin remaining below the 10% target until FY’27E. The increased returns rate brings in an added element of concern around product quality, but we continue to believe in Boohoo’s long-term potential, and see a path for recovery to the medium-term growth targets as we think the rapid growth of Shein in the US may be in boohoo’s favour in the long-run.”
Liberum added that it was “excited” by the developments at Debenhams, where the opportunity was “substantial” and continues to think the shares offer “good long-term value”.
Analysts at Berenberg said in a flash note on Wednesday that Rio Tinto’s $825.0m acquisition of the Salar del Rincon lithium brine project in Argentina was an “interesting deal” for the firm.
Berenberg said the deal was a reflection of intent by Rio Tinto to gain more exposure to batter metals, and confirmation from management that it was looking to enter into higher-risk jurisdictions for the right project.
“Given a compelling initial NPV, this looks like a sensible deal, although ensuring that the process works on a commercial scale and that costs are accurate is a key risk,” said the analysts.
“However, even if we think there could be some capex creep and higher opex, this appears to still be a low-cost, scalable project in an attractive commodity. We view the deal as a small positive for Rio, with the stock trading up on the ADRs on the announcement.”
The German bank added that it values Rio Tinto on a blend of 1.0x net asset value and 5.0x enterprise value/earnings before interest, tax, deprecation and amortisation, with the EV/EBITDA multiple reflecting a through-the-cycle valuation and resulting in a price target of 5,000.0p per share.
