Boohoo Group PLC (LON:BOO) isn’t a stock for the faint-hearted, analysts at Berenberg stated as they initiated coverage with a ‘buy’ recommendation.
The AIM-listed online retailer has de-rated dramatically in comparison with peers since reports of poor working practices in its Leicester supply chain last July.
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Boohoo has started making changes, which the investment bank reckons can be implemented while maintaining “its sector-leading growth and margin profile”.
Analysts, which set the target price at 460p, said many of the issues uncovered by The Sunday Times and subsequent Levitt Review are “inexcusable”, and “it is clear significant improvements need to be put in place and delivered”.
“We believe the company is making progress in implementing the near-term recommended improvements that can reduce the risk of pervasive issues in the future, but we also believe more can – and should – be done,” they noted.
Nonetheless, the clothier is expected to deliver revenue growth of 27% over the next three years, with the acquisitions of the Arcadia brands and Debenhams potentially generating a tailwind of 10%.
Berenberg highlighted that negative publicity over summer 2020 had no noticeable impact on consumer sentiment, while its supply chain changes aren’t estimated to affect the group’s competitive advantages materially.
Analysts also reckon that the underlying earnings (EBITDA) margin profile is sustainable, as the potential for cost inflation caused by increased supply chain wages should be broadly offset by increased overseas sourcing.
Shares rose 2% to 323.5p on Monday morning.