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Boohoo’s tumble nets tidy profit for Swiss shorter

On July 6, Zurich-based fund PSquared disclosed a 0.55% short interest in the fashion firm. Since then, the shares have fallen sharply amid an ongoing scandal over working conditions at a supplier in Leicester

Boohoo Group PLC - Boohoo’s tumble nets tidy profit for Swiss shorter

A Swiss asset manager appears to have netted a tidy profit after fashion firm Boohoo Group PLC (LON:BOO) suffered a sharp share price plunger earlier this month as its fights an ongoing scandal following allegations of poor working practices at a supplier in Leicester.

On July 6, Zurich-based PSquared Asset Management disclosed a 0.55% short interest in the company, when the shares closed at a value of 296.7p. Since then, their value has fallen further to 241.4p in mid-afternoon trading on Monday.

Short sellers borrow shares and immediately sell them for a profit on the expectation that the price of the stock will decrease so they can then buy back the shares at a cheaper price, return them to the borrower and pocket the difference.

Boohoo’s shares have fallen sharply since last Monday, shedding nearly 38% of their value after a story in the Sunday Times claimed conditions in the Leicester factory were akin to modern-day slavery.

READ: boohoo's value crashes by £1bn as investors desert after Leicester factory allegations

Jaswal Fashions was paying its staff as little as £3.50 per hour compared to the minimum adult wage in the UK of £8.72, according to an undercover reporter for the paper.

The site was also said to be operating without proper social distancing or additional hygiene protocols even though the city went back into lockdown last week.

The incident has also led some large institutional investors to dump their stakes in Boohoo, with the company’s fourth-largest shareholder Standard Life Aberdeen PLC (LON:SLA) offloading almost its entire holding in the group in the wake of the scandal.

The woes also look set to continue for the company, with analysts at Bank of America saying on Monday that it could cost up to £20mln to fix the supply chain issues, the costs of which could be passed onto customers.

Swiss success where Shadowfall failed

PSquared’s success may have been greeted with some jealousy over at fellow short seller fund Shadowfall, founded by 'Dark Destroyer' Matthew Earl, after its own attack on the company in late May failed to land any significant blows.

Investors were left mostly unphased by accusations from Shadowfall that the chain was overstating profits and cashflow, particularly around its accounting of subsidiary Pretty Little Thing.

READ: Boohoo strongly refutes allegations from ‘Dark Destroyer’ short seller

Boohoo responded strongly at the time, saying it "strongly refutes" allegations made in the report.

Despite the broadside, Boohoo’s shares increased in the following days, ending that week 7.7% higher.

Shares in the company were 13.7% lower at 241.2p in late-afternoon trading on Monday.

Quick facts: Boohoo Group PLC

Price: 312.7 GBX

AIM:BOO
Market: AIM
Market Cap: £3.94 billion
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