The ShadowFall hedge fund led by Matthew Earl, a specialist in positions that bet against the course of a business, published a 54-page report accusing Boohoo of misleading investors about profits and cash flows.
The report also says that a recent £ 200 million fundraising effort from Boohoo could be paid in dividends or buyout costs to Umar Kamani, the son of Boohoo chairman and co-founder Mahmud Kamani, who owns about a third of the group’s Pretty Little Thing. (PTL). ShadowFall also suggests that the funds could be used to buy I Saw it First, an online fashion company created by Jamal Kamani, the president’s brother.
The report, released on Tuesday, claimed that an option to buy out a remaining stake in the PLT site could cost Boohoo nearly £ 1 billion, and raised concerns about the presentation of profits and flows. cash linked to the PLT, which, according to him, have inflated the value of the brand. Boohoo paid £ 3.7 million to buy a 66% stake in PLT in 2016.
Boohoo said Wednesday that he “strongly refutes” the allegations made by ShadowFall. The company’s shares, which fell nearly 6% yesterday on news of the intervention, fell 4.5% on Wednesday.
The company said it plans to use the product on its part, “taking advantage of many opportunities that are expected to emerge in the global fashion industry in the coming months, particularly following the disruption caused by the start of Covid -19 “. He said he is looking at a number of possibilities.
Boohoo denied having underestimated the costs incurred by PLT and thus overestimated the profitability of the brand. He said the group had not inflated PLT’s profit contribution to its accounts, but said it had added all of the brand’s profits to a measure of group profits – after-tax adjusted profit – “for allow its shareholders and account readers to fully understand PLTs. underlying profitability ”.
Analysts downplayed ShadowFall’s claims, saying that most professional investors and analysts would not have been confused by Boohoo’s presentation of cash flows and profits.
Eleonora Dani, analyst at Stifel, said ShadowFall had a “fair point” to question the value at which the remaining 33% of PLT could be purchased in 2022. But it was “difficult to prove” the practices alleged by Boohoo according to ShadowFall. used to artificially inflate the profit and potential value of the PLT.
“We believe the report raised some good points but failed to identify the underlying trade issues to justify a short position. PLT completed the Boohoo portfolio and created healthy internal competition with its other brands, ”she wrote in a note.
Analysts from the city of Numis stock broker said, “We do not think this report highlights new information that should cause concern. “
They added that it was highly unlikely that the president of Boohoo would want to acquire his brother’s business.