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Boohoo sees light relief as shares jumps 26% 

10:59, 9th July 2020
Francesca Morgan
RNS Newswire
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Shares in Boohoo  (AIM:BOO FOLLOW) bounced back 26.79% this morning after the retailer saw £2 billion wiped off its value following a Sunday Times investigation this week which uncovered poor working conditions at one of the Leicester factories used to supply its clothes.

The support from investors has provided some light relief to the fast fashion retailer after brands including Next and Asos dropped its goods from their stores amid the scandal.

Jupiter Asset Management, the group’s largest independent shareholder, had already increased its holding on Monday despite the share price tumbling in the aftermath of the allegations, which also saw a social media boycott, the Financial Times reported today.

Jupiter raised its stake - acquired through its recent takeover of Merian Global Investors - from 9.6 to 10.1% “following conversations with management about its strategy”, it said.

Boohoo said on Wednesday that it was taking the allegations ‘extremely seriously’ and that it has launched an independent review of its UK supply chain, to be led by Alison Levitt QC.

It said an immediate investigation was launched as soon as the group was made aware of the allegations of mistreatment of garment workers by its third party suppliers on 6 July.

Shares in Boohoo were trading 26.79% higher at 285p on Thursday morning.

BOO price chart

In yesterday’s statement, the retailer said it would accelerate its own compliance auditing processes and invest an initial £10 million to eradicate any supply chain malpractice.

"As a board we are deeply shocked by the recent allegations about the Leicester garment industry,” said John Lyttle, Chief Executive of Boohoo.

“We wish to reiterate how seriously we are taking these matters and we will not hesitate to terminate any relationships where non-compliance with our Code of Conduct is found.

Our commitment to an incremental £10 million of investment demonstrates our resolve to enforce the highest standards of ethics, compliance and transparency for the benefit of all garment workers,” he added.

Meanwhile, John Stevenson, an analyst at Peel Hunt said he has made no changes to his profit forecasts for Boohoo because he does not think its profitability is under threat.

“We’ve seen regular exposés into UK and overseas supply chain conditions, which rest on a high profile company such as boohoo or Primark. By accepting the need to rebuild Leicester’s reputation, Boohoo is stepping up to the plate, rather than brushing this aside.

Fundamentally, we see the share price fall as a buying opportunity, accepting that ESG remains a work in progress for boohoo, which the group and board remains committed to,” said brokers at Peel Hunt.

Jefferies, the international investment bank added, “It's been a tough week, with ASOS and Zalando joining Next in removing Boohoo products from their websites, and media reports suggesting certain Instagram celebrities had 'turned their back' on the brand.

That being said, we note that wholesale had contributed just 1.4% of revenue last year, so we do not expect any material impact on forecasts.”

However, Shore Capital countered that the growing significance of environmental, social, and governance issues amongst investors could result in push back from those invested in ESG.

Shore analysts said, “The company has to deliver the outcome of its own investigations and it faces the potential of external enquiries too, including a possible police investigation.

Until the outcomes are better understood, the stock feels less than appetising for many investors and may be totally off limits for many ESG funds for now.

This may in time prove to be a short-term blip and so no damage to brand equity, or it could be a Gerald Ratner moment. In our view, with a premium rating and major issues around brand equity, trading and financial fall-out, we think it wise to move to sell the stock.”

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