Cube Midcap Report (13 July 2020) – A complicated web at Boohoo #BOO

Cube Midcap Report (13 July 2020) – A complicated web at Boohoo #BOO

Good morning!

If you’re in England, I hope you’re looking forward to visiting salons, nail bars and tattoo parlours, which are all opening today. You can also now visit spas, massage studios and physical therapy businesses.

There are also some changes in Scotland and Wales.

Our show is happening at 12 noon today, tune in then:

In this report, I’m interested in:

  • Boohoo (BOO) (might also mention QUIZ)
  • CMC Markets (CMCX)

Finished at 1.30pm.


Market cap £3.0 billion
Share price 240p (-14%)
RNS None.
Writer disclosure No position

Boohoo was the topic of my talk at Mello Virtual on Friday – and it remains topical today.

Around the time I was speaking, the Guardian published a story linking the Kamani family (founders of Boohoo) to the factory in Leicester where a Sunday Times reporter found evidence of staff being paid less than minimum wage.

The Guardian produced this graphic:

In English, it says:

  • Jalal Kamani, co-founder of Boohoo is owner of rival company I Saw It First…. (we knew this already)
  • which has a Director (Shahzad Irshad) who owns another company (“I5 Holdings”)….
  • which owns 50% of the company which runs the factory at the heart of the Sunday Times piece.

“Zogan Ltd” is another company, having directors in common with I Saw It First, which until last month owned I5 Holdings.

(Hat-tip to Leo – who is short Boohoo – who claims to have broken the story first.)

Remember that Jalal Kamani (0.65% Boohoo shareholder) is the older brother of Mahmud Kamani (12% Boohoo shareholder), the Executive Chairman at BOO.

The Guardian followed up the story with an article criticising the asset management industry for being “shockingly timid” in its approach to ethical issues, and also blaming the authorities for not enforcing rules on minimum pay, pensions, etc. Standard Life Aberdeen have now sold most of their stake in BOO.

Social links

The Daily Mail has also been on the case – the mainstream press is really loving this story!

It has managed to find pictures of Mahmud Kamani socialising with Asheem Sobti.

Asheem Sobti is Director of the Manchester-based supplier which received an order from Nasty Gal.

Nasty Gal then subcontracted the order to Morefray Limited – the company running the factory in Leicester.

My view

I’ve avoided buying Boohoo shares on the grounds of a) excessive valuation, and b) concerns around whether the company is being run for all of its shareholders equally.

The Kamani family has done extremely well out of it, most recently with the PrettyLittleThing acquisition for Umar Kamani.

In my talk on Friday, I also noted that the new Management Incentive Plan is very favourable to Samir Kamani, another son of the Chairman. His reward in the plan is 2.5x the size of the reward for the Group CFO. This incentive plan also has some flaws, in my view, when it comes to the long-term interests of shareholders.

I must be clear that I don’t begrudge the Kamani family their success – not at all! I simply think that private investors need to be careful when approaching this situation, because there is the potential for other shareholders to be treated less well than family members.

The Sunday Times notes that Adam Kamani runs the property company which is Boohoo’s landlord and that the husband of joint CEO Carol Kane received £500k for marketing services to BOO.

In general, I do find family businesses appealing. But only if they treat all shareholders equally. I can’t overlook poor governance, complicated ownership structures and flawed incentive plans.

Complicated ownership structures can exist for perfectly sound reasons of course, but sometimes they are there to fool somebody – e.g. investors, or the tax man.

Let’s think for a moment about Boohoo placing an order with Revolution Clothing Limited, which then sends instructions to Morefray (which runs the factory in Leicester).

That may be a perfectly innocent and reasonable chain of events. But my question would be this: if it’s true that the top heads at Boohoo/Nasty Gal already know the people at Morefray (since they are connected to them via the Directors at I Saw It First), why wouldn’t Nasty Gal place the order directly with Morefray? There may be a good explanation, but what could it be?

It has also been noted that Boohoo does not have an independent non-executive Chairman. I don’t think every company needs that, but in Boohoo’s case there are clearly some corporate governance question marks around the Chairman. He could receive up to £50 million in cash or shares from the recently announced incentive plan. He’s at the top of the company – who watches the watchers?

As always, caveat emptor.


Quiz (£8 million market cap) – Response to Media Reporting

A quick word on this one, since it’s clearly related to the Boohoo situation.

Again, it’s “grateful to the press” for highlighting non-compliance. Another factory in Leicester is alleged to have paid below minimum wage to its workers.

From our initial review, we believe that one of QUIZ’s suppliers based in Leicester has used a sub-contractor in direct contravention of a previous instruction from QUIZ.  It is this sub-contractor that is subject of the National Living Wage complaint.  QUIZ has immediately suspended activity with the supplier in question pending further investigation.

There will be a “full review” of auditing processes at QUIZ, to achieve compliance throughout its supply chain.

Boohoo will have to hope that more of the industry gets caught up in this.


CMC Markets

Market cap £965 million
Share price 333.75p (+1%%)
RNS Appointment of Chief Technology Officer
Writer disclosure No position in CMCX. Long IGG.

This is a new position at spread bet firm CMC.

I note that IG (in which I have a long position) has an equivalent role – you can find the incumbent’s LinkedIn profile, if you’re interested.

Anyway, CMC has created the position and hired someone from a digital consultancy.

He was instrumental in growing the consultancy from 16 to 400 employees and forming a global entity. Brendan also shaped and led digital transformation programmes at Allianz and EDF while overseeing a number of other transformation programmes in highly regulated enterprise organisations.

It’s good news for CMC investors, I think. But what I’m much more interested in is CMC’s risk management techniques.


Hanging up my pen there for today. If you enjoyed the article and the stream, please go ahead and give me a thumbs up!

Best wishes,




Wordpress (3)
  • comment-avatar

    Very good report & stream, although horrifying for me personally as I am long BOO!

  • comment-avatar

    To my mind the most valuable thing about your website and the SCVR over on Stocko are the pointers to companies with a slight whiff emanating from them.  Your insights into the nepotism at Boohoo have helped me to steer clear of a company that is quite clearly not behaving with the best interests of all share holders and that really is enough of a reason to give them a wide berth. All that said and in spite of the fact that  I’m not normally a trader, I did dip in and back out very rapidly this week following the initial news reports and luckily escaped with a small profit but the idea of holding for the longer term would be consigning myself to long term insomnia!

  • comment-avatar

    Hi Graham

    I am long Boo the position being built since 19th June but I did hold from November 2015 to March 2020 buying at various times early in that time frame and earned a CARG of 44% and if I had not sold the last tranche at the March low the return would have been even better.

    While presumably from what people say if shareholders had been treated equally my CARG would have been considerably higher I am content to let them take the rewards for the risks they have taken early on and the business they have built.  

    I have much more trouble with say Eisner at Disney taking home $120m + over two years for being CEO. 

    As for the allegations if proven then this is appalling treatment of sub contractor employees and will need to be rectified but it is not terminal for the company. That said we (particularly the media of whatever political hue) have never liked success so will always seek ways to bring them down. 

    SLA’s actions is just virtue signalling PR exercise. One has to only look at the investments they hold to see that not invest on ESG principles. One of their ESG funds holds BAT loan notes. 

    Thank you as always for a thought provoking report. 

    Kind regards

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