boohoo Group PLC’s (LON:BOO) shares “appear cheap” at their current levels as the company continues in efforts to fix issues with its supply chain, according to analysts at Liberum.
In a note on Friday, the broker upgraded the online fashion giant to ‘buy’ from ‘hold’ and retained their 380p target price, saying they expected the company’s growth to “remain strong” throughout its 2022 financial year and the shares “still appear to have a large ESG discount built-in”.
Liberum added that the shares currently trade “at a significant discount to the peer growth” in the sector and while their previous rating had been based on “the uncertain long term financial and reputational impact of the supply chain review”, they were now “satisfied with the progress the company has made so far to fix its supply chain issues, as well as the plans shared for the future”.
“What is clear from the three reports published so far by Sir Brian Leveson…appointed to provide independent oversight of boohoo’s Agenda for Change Programme, is that boohoo has taken the supply chain review very seriously, and is going above and beyond to cover all aspects in the review. The company is not engaging in a one-time fix of the existing issues highlighted in the review by Alison Levitt QC, but is installing systems and processes that would ensure a continuous process of review and improvement.
“We believe the company has adequately dealt with the risk of any one-time financial and reputational damage from supply chain issues, albeit the job is not yet done and will need to be a continual focus from here. It has managed to do so with limited visible financial impact around the gross margin, and only an ongoing cost of single-digit millions [of pounds per year] for maintaining the structures put in place”, the broker said.
“We therefore believe that the current share price undervalues the company as it should trade at a premium to the peer group given its strong profitable growth forecasts and huge market opportunity. While we do not reflect this yet with our [target price] suggesting a discount, as the path to redemption is a long road, but we fully think the company should start to see the benefits of the work it has done, the promises it has made for the future and the growth being achieved nearly doubling revenues over a 2-year basis”, Liberum added.
Shares in boohoo were down 0.2% at 331p in late morning trading.