Short-seller assault does little to stop Boohoo shares' ascent

ShadowFall Capital went on the offensive last week, with the short seller questioning the online fashion retailer’s free cash low levels. But the assault has done little to dissuade other investor interest in Boohoo shares.

Boohoo saw its shares slip momentarily last week when short-seller ShadowFall Capital released a 53-page report that claimed the online fashion retailer misrepresented its free cashflow this year by £32 billion.

The report precipitated Boohoo shares to fall 12% in a single session, but slide was only temporary, with investors remaining optimistic about the stock, helping the company’s share price rally 20% in the days since the short-sellers accusations.

In response, Boohoo said that it ‘strongly refutes’ the allegations made by the hedge fund and that it intends to use the proceeds from its recent £200 million capital raise to explore further M&A opportunities following the market disruption caused across the retail sector due to Covid-19.

Liberum raises share price outlook on Boohoo

Analysts at Liberum certainly remain optimistic about Boohoo and its share price trajectory, with the London-headquartered investment bank upping its target price for the stock at the end of May.

Liberum raised its target price for the online fashion retailer from 430p to 490p per share, with analysts blaming their positive outlook for the stock on its recent acquisition of the remaining 34% stake in PrettyLittleThing, labelling it’s a ‘very shrewd and positive move’.

Liberum estimates that the deal values PrettyLittleThing between £998 million and £1.2 billion, which its analyst said implies a £12 million forward 12x - 15x enterprise value (EV)-to-EBITDA ratio, which is approximately half of the respective current multiples for Boohoo.

‘We forecast £215 million of free cashflow over the next two years, leading to net cash of £476 million by year-end 2022, excluding further M&A,’ Liberum said.

‘This gives significant firepower to continue developing the group's stable of own brands, broadening its customer base and opportunity set across the global fashion market,’ it added.

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