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15 Mar 2021 | 10:26

Berenberg initiates 'not for the faint-hearted' Boohoo at 'buy'

(Sharecast News) - Berenberg initiated coverage of Boohoo at 'buy' on Monday even as it conceded that shares of the scandal-hit fast-fashion retailer are "not for the faint-hearted". The bank said Boohoo shares have de-rated dramatically in comparison with peers since reports of failings in its Leicester supply chain in July last year.

However, it also noted the group has begun to make changes to the working practices in its supply chain. Berenberg said there were some additional steps it would like the retailer to take but that importantly, it reckons Boohoo can make changes while maintaining its sector-leading growth and margin profile.

The bank, which set a price target of 460p, forecast revenue compound annual growth of 27% in the coming three years.

"We do not think that the supply chain changes are likely to affect the group's competitive advantages materially, and we show that negative publicity over summer 2020 had no noticeable impact on consumer sentiment," it said.

"Furthermore, we estimate that the recent acquisitions of the Arcadia brands and Debenhams could generate a circa 10% tailwind to FY22 growth, with upside risk, and Boohoo's free cash flow to equity generation in the coming three years could enable it to acquire c£900m of revenues."

At 1055 GMT, the shares were up 2.1% at 322.80p.
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