Interactive Investor

Insider: almost £1m spent on shares in this well-known AIM pair

26th October 2020 11:36

Graeme Evans from interactive investor


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Both companies have grabbed headlines this year. Now bosses are buying and the share prices are rising.

Almost £1 million worth of ASOS (LSE:ASC) and Boohoo (LSE:BOO) shares have been bought by directors following recent weakness in the valuations of the fast fashion giants.

The biggest purchase was made last Tuesday by Boohoo executive chairman Mahmud Kamani, who picked up £730,000 worth of stock at 243p. He was joined by deputy chairman Brian Small and the wife of chief financial officer Neil Catto, with £25,000 and £15,000 respectively.

Their moves follow a torrid few weeks for the Boohoo board after an independent review of pay and working conditions in the company's Leicester supply chain.

On the same day as the Boohoo purchases, ASOS board member Luke Jensen took advantage of the recent wobble for AIM's biggest stock by buying £200,000 worth of shares at 5,070p.

ASOS shares had been 5,438p before falling back to 4,644p after this month's annual results raised worries about how Covid-19 is impacting the company's 20-something customers.

The group has so far adapted well to the staying-in fashion trends and shift towards casualwear, but CEO Nick Beighton is wary about the economic fall-out of the pandemic, particularly when so many young people are losing their jobs in the hospitality industry.

Despite this uncertainty, there were plenty of positives in the company's results after profits, excluding Covid-19 tailwinds such as low customer return rates, rose three-fold.

Year-end net cash was much bigger than expected at more than £400 million, while the warehousing issues that plagued the previous year's results look to be over. 

Assessing the current year's performance is made harder by Covid-19 distortions, but with ASOS reporting a solid start to the new financial period there are plenty of analysts expecting the company's shares to shake off the recent volatility.

Investec Securities has a price target of 7,520p, representing a return to levels seen two years ago, while Jefferies is at 5,900p based on ASOS trading on about 40 times 2022 sales.

The estimates go to show why ASOS's £239 million fundraising in April was so loved by City institutions after an oversubscribed offer of new shares at a price of just 1,560p.
ASOS directors took part in that placing, with Jensen acquiring £62,000 worth of stock and returning a month later for another £50,000 of shares at a price of 2,773p. That purchase in May has already generated a paper profit of £34,000 after shares rallied on the back of a quicker than expected recovery in sales from the initial Covid-19 shock.

Jensen knows the retail sector well as chief executive of Ocado Solutions, which is the technology powerhouse behind the FTSE 100-listed company. He joined ASOS in November as one of four new members appointed to strengthen the company's board.

ASOS is now worth £4.6 billion, compared with £3.4 billion for Boohoo after its rival's shares almost halved to 210p in the wake of July's allegations in the Sunday Times concerning the company's supply chain in Leicester.

There was a recovery to 390p in September, only to fall back by a third after an investigation by Alison Levitt QC led some MPs and pressure groups to call for Kamani to step aside on corporate governance grounds. The uncertainty continued last week when it emerged that Boohoo is looking for a new auditor to replace PwC after its six years in the role.

Despite these pressures, the founder's position was boosted last week when the company's biggest independent shareholder, Jupiter Fund Management, reportedly wrote to one of the MPs in support of the company's management.

Kamani's purchase of shares on Tuesday also sent a clear message to shareholders, with the purchase taking his stake in the business to more than 12.5%.

Peel Hunt said on Wednesday that the arguments in favour of an independent chairperson were becoming increasingly persuasive as investors tire of the rollercoaster share price ride. The broker added:

“For us, this would be a major part of the group's rehabilitation in the eyes of investors and other stakeholders.”

Peel Hunt, which has price target of 475p, suspects that addressing the Levitt recommendations will create more share price volatility but that this could also present a buying opportunity.

Boohoo recently lifted its revenues forecast for the year to the end of February to between 28% and 32%, with an underlying margin around 10%. Pre-tax profits were 51% higher at £68.1 million in the six months to the end of August.

Boohoo’s strong cash generation has enabled further bolt-on acquisitions, with the addition of Oasis, Warehouse and the remainder of PrettyLittleThing to its growing portfolio. A recent £198 million placing has increased its firepower, and despite the acquisitions Boohoo retained net cash of £345 million at the end of the half-year period.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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