Boohoo shares soar 20% as City backs under fire fast fashion seller

The stock may be off limits for funds that are interested in environmental, social, and governance issues.

Maura Higgins modelling for Boohoo

Ricky Vigil/Getty Images for Boohoo

9 July 2020

Boohoo shares rose this morning as the City stuck by the fast fashion seller despite recent revelations about working conditions at some of its suppliers.

Yesterday the fast fashion giant launched an independent investigation led by a top barrister into its supply chain, and pledged to beef up its board with more directors. It has also ditched two suppliers accused of employing staff on slave wages.

In early trading shares rose 20% higher as a string of broking houses urged people to buy the shares. Traders are mostly interested in revenues and profits.

Brokers at Peel Hunt said: “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. Now trading on sub 25x PER.”

Jefferies 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.

"There was also positive news with a series of multi-agency government-backed visits to Leicester factories resulting in no enforcements and the identification of no offences under the Modern Slavery Act.”

But one broking house demonstrated a moral compass as Shore Capital urged investors to sell.

Shore 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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