Interactive Investor

Not a great look for Boohoo as shares crash again

8th July 2020 12:41

Graeme Evans from interactive investor


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Shocking allegations have torpedoed this star AIM stock, but there are other big movers today.

The promise of an independent review into its UK supply chain failed to ease the pressure on Boohoo (LSE:BOO) today as this week's sell-off for AIM's former biggest stock reached 48%.

The rapid descent comes after allegations in a Sunday newspaper concerning low pay and unsafe conditions at a fast fashion supplier in Leicester. It has led to ASOS (LSE:ASC) and Germany's Zalando (XETRA:ZAL) following the lead of Next in dropping Boohoo clothes from their websites pending a fuller investigation.

While such wholesale partnerships account for less than 1.5% of the group's turnover, the moves have helped to ensure that spooked investors continue to stay away from Boohoo shares, with more than £1 billion was wiped from the company's value on Monday alone.

The stock fell another 22% at one point today after Boohoo disclosed that it had immediately terminated its relationship with two suppliers following non-compliance with its code of conduct. However, its preliminary investigations have not found evidence of suppliers paying workers £3.50 an hour.

Source: TradingView. Past performance is not a guide to future performance.

An independent review, led by Alison Levitt QC, will now take a detailed look at the company's supply chain, including compliance with minimum wage and Covid-19 regulations. An update is expected when the NastyGal and PrettyLittleThing owner reports half-year results in September.

The dramatic turn of events comes less than a month after Boohoo stunned the City with better-than-expected lockdown trading. Sales jumped 45% for the three months to 31 May, prompting analysts at Liberum to call it a “blowout” quarter as they upped their price target to 500p.

The gross margin of 55.6% was also the highest recorded by Boohoo since 2016, having improved by an unexpected 60 basis points in the quarter due to limited reliance on markdowns and through the benefits of a responsive supply chain.

The update cemented Boohoo's position at the time as AIM's biggest stock, with shares up by 9% on the day and by 170% since mid-March. At £2.8 billion after this week's sell-off, Boohoo now ranks behind Hutchison China Meditech (LSE:HCM), ASOS and Abcam (LSE:ABC) as the fourth-biggest stock on AIM.

ASOS shares were also 3% lower at 3,090p today, unwinding some of the recovery from just above 1,000p in mid-March. It had been trading at above 7,000p in 2018 before encountering difficulties with new overseas warehousing operations. 

Companies like Boohoo and ASOS have so far been beneficiaries of the Covid-19 lockdown as high street closures have accelerated the shift towards online sales.

The FTSE AIM All-Share was down 1% at 874.3 points today, whereas the FTSE 100 index was off by a more modest 23.1 points at 6,166.8.

HSBC (LSE:HSBA) was again under pressure after it was reported that advisers to Donald Trump were considering undermining the Hong Kong dollar's peg to the US dollar. The speculation comes with HSBC caught between the US and China in the row over a new security law in Hong Kong.

Its shares fell by 17% in the second quarter — the worst of any stock in the FTSE 100 index — and were down another 4% or 14.7p to 380.45p today. Asia-focused Standard Chartered (LSE:STAN) was off 9p to 433.2p.

Elsewhere in the top-flight, Segro (LSE:SGRO) shares gave up 3.6p at 911.4p. This was despite the warehouse specialist reporting that it had received 93% of the £37 million of rent which was due on UK quarterly rent day on 24 June. That compares with a rent collection rate of 36% for the retail estate of British Land and 16% reported by Hammerson (LSE:HMSO) at the start of July.

Segro's exposure to the e-commerce boom means its shares have been among the most resilient in the property sector during the lockdown. The stock is now almost back where it was prior to the Covid-19 sell-off, having slumped from 935p in mid-February to 659p a month later.

Among smaller-cap stocks, Wincanton (LSE:WIN) rose 2% to 185p after the logistics company announced a two-year extension to its contract with supermarket Asda. The contract involves 1,385 Wincanton staff and 53 vehicles in the management of warehousing and national transport operations across four key Asda sites in Doncaster, Larne, Rochdale and Wigan.

Last week, Wincanton won a five-year contract to develop and operate a customer fulfilment centre in West London to support Waitrose's expansion in online grocery home delivery.

Back in AIM, there was positive news from Northern Ireland-based Diaceutics (LSE:DXRX) after it reported a positive start to the new financial year. Shares hit another high of 172p after rising 2p.

The company, which provides data analysis and advisory services that help pharma companies develop diagnostic tests, has seen sustained demand from its blue-chip client base and steady repeat business. Its current and pipeline projects are largely uninterrupted by Covid-19.

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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