Shore Capital upgrades Boohoo to 'hold' after shares tank

(Sharecast News) - Shore Capital has upgraded its stance on Boohoo from 'sell' to 'hold' following a big slump in the fast fashion retailer's share price over recent months. The broker said that, despite the market backdrop being poor - consumer confidence is still low, inflation is having an impact on spending and concerns remain about the fallout from America's trade war - downside is now limited after a 35% drop in the stock since November.

"While we believe that the group could face challenges from a tough macro backdrop, the focus on the Debenhams model could yet provide a more sustainable solution, for which further details are expected during the full-year results," Shore Capital said.

Boohoo said last month that it is to push ahead with plans to rebrand as Debenhams despite opposition from its largest shareholder Frasers Group - a move which Shore Capital said is "sensible".

"By focusing more on a marketplace model, it provides an opportunity for better profitability (management guides to a 20% EBITDA margin for the Debenhams division over the medium-term vs 6-8% margin for Youth brands and double-digit for Karen Millen)," the broker said.

"However, the profile of this profit development remains uncertain, and there remains a negative mix impact from other brands; therefore, we retain some caution while restructuring occurs."

Boohoo shares were up 4% at 20.6p by 1057 GMT.