Insider: spending spree at Boohoo and AO World

Very differing fortunes have triggered some big share purchases at these high-profile retailers.

The entrepreneurs behind Boohoo (LSE:BOO) and AO World (LSE:AO.) have dipped into their personal fortunes to buy more shares in their respective companies, albeit in contrasting circumstances.

Boohoo's Mahmud Kamani and Carol Kane spent £15 million between them, having seen the AIM-listed fashion retailer almost halve in value since allegations about working conditions at a factory of a Leicester-based supplier.

A more modest £222,400 was spent by John Roberts to back up the AO World CEO's claims that the online electricals retailer can be “a new habit that lasts” following the lockdown.

AO shares trebled in value between March and their high of 164p last week, although the 154,495 shares bought by Roberts were at a lower price of 144p following Tuesday's full-year results.

The former kitchen salesman, who owns 22.58% of the company, co-founded AO in 2000 when a friend bet him a pound that Roberts could change the way white goods are purchased via the internet. A £1.6 billion IPO in February 2014 saw shares priced at 285p, and despite soaring above 400p on the first day of trading, they've been on a downward spiral since.

At 50p in April, investors who saw the potential for the company to benefit from a shift in customer behaviour during the Covid-19 lockdown have been well rewarded.

Last week's results only covered the period to 31 March, but AO said sales since then had been  better than expected with significant market share gains across key categories. Now that customers are able to return to bricks and mortar stores, the challenge for AO will be to show that it can continue to grow just as strongly.

Roberts said:

“In short, we must drive forward so those customers never look back.”

Updating its forecasts last week, Numis Securities said it was looking for 25% revenues growth in the 2021 financial year and underlying earnings of £48 million, based on a 5% margin in the UK and the near halving of European losses.

The broker raised its target price to 200p, adding:

“AO looks well positioned to capitalise on deeper relationships with customers and partners through this period.”

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Boohoo

At Boohoo, the purchase of shares by executive chairman Kamani and executive director Kane sent a message to the City that they intend to restore the battered reputation of the retailer following the Leicester allegations.

More than £1 billion was wiped from the company's value the day after the claims emerged in the Sunday Times, with the stock as low as 205p last week. It had been above 400p just a month earlier after significantly better-than-expected sales during the lockdown.

Much will now depend on the outcome of an independent review of the company's supply chain by Alison Levitt QC, who will look at compliance with minimum wage and Covid-19 regulations.

Boohoo has already terminated its relationship with two suppliers due to breaches of its code of conduct, adding that its preliminary investigations have not found evidence of suppliers paying workers £3.50 an hour.

Pressure on the company's shares increased on Friday, however, when Credit Suisse said that Boohoo may need to make substantial changes to its business model, including the use of more overseas manufacturing. Boohoo, however, insists it is committed to its UK suppliers.

What's clear is that Boohoo valuation will remain depressed while investors with a focus on environmental, social, governance (ESG) credentials review their holdings.

Bernstein said in a recent note:

“We expect this to remain an overhang on the name for the short-term, certainty until Boohoo's name is cleared on the Leicester wage scandal, but also until the company is able to regain investors' trust on ESG issues more broadly.”

While the broker thinks the next year will be a rocky ride for shares, it describes the current price as a “clear buying opportunity” for longer-term investors.

Peel Hunt has also retained its ‘buy’ recommendation, with a price target of 475p. It said: “The group's multi-brand platform remains a compelling growth opportunity, but management must move to quickly embrace ESG improvement.”

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Thursday's purchases by Boohoo's co-founders saw Kamani buy £10.7 million worth of shares at 214.2p and Kane pick up around £4.8 million at the same price. Kamani owns 12.5% of the company, worth about £320 million, while Kane has 2.6% or £66 million.

Before setting up boohoo.com in 2006, the pair worked together for over 20 years supplying high street retailers. The Boohoo online empire now includes the brands Karen Millen, Coast and MissPap, with revenues in the year to February of £1.2 billion leading to pre-tax profits of £92.2 million, a rise of 54% on a year earlier. Its success had made Boohoo the biggest stock on AIM, having joined the London market at 70p in March 2014.