Boohoo shares down 17.7% after investor offloads stake

Boohoo shares dropped 17.7% today following news that one of its largest investors dumped the majority of its stake and further media scrutiny.

Standard Life Aberdeen (SLA), the UK’s largest listed asset manager, dumped shares worth £80m on Friday (roughly two thirds of its stake) following allegations of underpayment of staff at a factory that had been supplying the Manchester-based fast fashion etail group.

The weekend before last, Boohoo was the subject of an investigation by an undercover journalist from The Sunday Times who revealed that staff were paid as little as £3.50 an hour in a factory in which clothing destined for Boohoo and its subsidiary Nasty Gal was seen.

Following an investigation by Boohoo it was claimed that the clothing had been made in Morocco and was sent to the factory for repacking by one of Boohoo's suppliers. The company operating at the offending factory was confirmed to be Morefray, despite signs over the door saying Jaswal Fashions, which is not an official supplier.

Boohoo subsequently appointed Alison Levitt QC to conduct an independent inquiry into its supply and a number of investors appeared to be satisfied with the response. Having lost £1.5bn in value, its shares recovered some of their lost value on Friday, rising to 280p having slumped to as low as 225p in the midst of the crisis.

Before the revelations in the newspapers shares had been trading for as much as 415p. Following Standard Life Aberdeen's decision, however, shares lost pretty much all the ground they had recovered today closing at 230p.

In addition media reports on Friday and over the weekend continued to apply pressure on Boohoo. It emerged that the company that had sub-contracted Morefray to pack garments was Revolution Clothing whose director, Asheem Sobti, is a personal friend of Boohoo chairman Mahmud Kamani.

The Guardian also revealed that Jalal Kamani, Mahmud Kamani's brother, has indirect links to Morefray through a director in common with his fast fashion brand I Saw It First. Boohoo has said it has terminated contracts with both Revolution Clothing and Morefray.

In an analyst note Bank of America said Boohoo may have to increase its prices and pay more for its clothing to be sold in future. They were among a number of analysts to deem it problematic that Boohoo did not appear to have sufficient visibility of its Tier 2 suppliers.

“In our view, part of the problem Boohoo has had through these accusations is that it does not appear to have full transparency on all of its supply chain, particularly its Tier 2 suppliers,” its note said.

Meanwhile rival fast fashion group QUIZ also found itself under the spotlight for alleged underpayment at a Leicester factory this weekend. The AIM-listed business also said the supplier concerned had been sub-contracted the work against its directions. It too has pledged an investigation but so far its shares have retained their value.

After a sharp 20% plunge this morning when trading began, shares quickly recovered their value and closed the up 0.3% at 6.77p.