Broker tips: Boohoo, Ascential, Royal Mail

Online fashion retailer Boohoo got a boost on Wednesday as Liberum bumped the stock up to 'buy' from 'hold' and lifted the price target to 240p from 220p on the back of an improvement in its key metrics.

In a note on online retailers, Liberum highlighted a consistent improvement in sales retention, higher customer lifetime values and said Boohoo has the best lifetime value to customer acquisition costs spread versus peers. Still, the brokerage said it was mindful of early stage and execution risks.

"We view Boohoo as an online fast fashion version of Inditex where through a collection of brands it operates in the highly competitive youth-orientated segment of the fashion market.

"While some may call into question Boohoo’s relatively high customer attrition rates, the company’s high sales retention and resultant LTV:CAC spread signals that the efficiency of its marketing spend is high enough to justify continuing to invest in acquiring customers at a strong rate."

On the downside, though, Liberum said a key risk is Boohoo's relatively early stage growth versus ASOS and Zalando.

"An important support to its ongoing success will be continued investment to develop its warehousing and distribution infrastructure, which will account for the majority of its guided £235m of capex over FY19E-21E. This is intended to lay the platform to support a more than tripling of sales to £3bn (versus £580m in FY18)."

Goldman Sachs reinstated coverage of Ascential, formerly EMAP, with a 'buy' rating and 560p price target, saying the new business mix will support double-digit organic growth to 2020.

The bank said that following the sale of the slower growth exhibitions and festivals assets to ITE Group, which completed this month, the remaining business is set to deliver double-digit organic growth and over 500 basis points of EBITDA margin expansion by 2020.

"In our view, the new shape of the group reflects a rare asset, well positioned to benefit from the disruption and direction of growth within consumer/retail and advertising markets combined with an attractive financial profile of high growth, margins and cash conversion."

Goldman also said it sees further scope for M&A, particularly given the recent proceeds the company received from the sale to ITE.

"Historically, acquisitions have been a significant contributor to revenue as the company re-oriented its portfolio towards growth," GS said.

"While we see margin dilution as a risk, the company has a strong track record of delivering on previous acquisitions, and we believe that further focus on the stated strategy is likely to support a further multiple re-rating."

JPMorgan Cazenove cut its price target on neutral-rated Royal Mail to 537p from 561p on Wednesday following the company's first-quarter results a day earlier.

It said the results suggest a relatively stable backdrop, with any GDPR-related impact appearing modest year-to-date, such that letter revenue is down a manageable 5% year-on-year, excluding elections.

That said, the bank remains cautious and reckons letter trends could still deteriorate from here.

JPM said addressed letter volume was down 6%, which is at the upper end of the 4- 6% range, as expected. Parcels appears to be a bright spot, it said, with volume and revenue up 7% and 6% respectively, though noted that around 1% of this revenue growth is international volume, which will likely have a lower drop-through to profitability.

"We would also note that GDPR has only been in effect for circa 1/3 of the period covered by the Q1 trading update, such that any impact may be more pronounced in future periods," it added.