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Boohoo shares bounce back as investors back response to Leicester allegations

Lauretta Roberts
10 July 2020

Shares in fast fashion group Boohoo have recovered some of their value after plummeting this week following allegations of mistreatment of staff at a Leicester factory.

After The Sunday Times published an article in which an under-cover reporter found that staff were paid as little as £3.50 at a Leicester factory where goods destined for Boohoo and its subsidiary Nasty Gal were seen, its share prices collapsed wiping £2bn of its market capitalisation.

However, having dropped to as low as 224p by close of play on 8 July, the price has climbed back up to 291.2p at the time of writing (mid morning 10 July), adding about £1bn in value, but are still some way off from their price of more than 400p before the allegations hit.

Boohoo responded to the criticism first by explaining the the supplier concerned was not a direct supplier and the clothes seen there were not made there but sent by another supplier for repackaging. It also revealed that it had hired Alison Levitt QC to carry out a full, independent investigation into its supply chain.

Some analysts seem convinced that the incident was isolated and that the drop in price was too severe but also represented an opportunity to buy. Their confidence was further enhanced by the fact that the Gangmasters and Labour Abuse Authority had not found evidence of modern slavery at the Leicester factories.

Société Générale analyst Anne Critchlow, said in an investor note seen by The Guardian: “We view the recent share price fall as a buying opportunity and consider this week’s supply chain/low-pay controversy to be an isolated incident. We are also reassured to see Boohoo taking strong action to limit the risk of future controversies.”

Other investors including HSBC, Goldman Sachs and Peel Hunt have also retained their "buy" status on Boohoo stock. According to The Times, HSBC has retained its 500p target price and has said it expects the impact on sales to be minimal.

Also this week, big name multi-brand retailers such as Next, ASOS, Very and Zalando suspended Boohoo brands from sale from their websites while investigations took place. However wholesale is believed to account for around 4% of its £1.23bn sales and it had been seeking to reduce that channel.

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