Credit Suisse starts ASOS at 'neutral', says bullishness priced in

Credit Suisse initiated coverage of ASOS at ‘neutral’ with a 5,100p price target as it took a look at the European online retail sector.

It said ASOS remains an attractive growth company 16 years after it was founded, with a distinctive business model and differentiated product offer, fashion credentials, strong engagement with its target 20-something demographic and global distribution. All of this positions the company to become a potential long-term winner in apparel retail, CS said.

It pointed to the company’s aspiration to become a £3bn+ business by 2021 and said that while the targets outlined at the capital market day are demanding, they are not unrealistic.

“ASOS is now more focused (post China exit), and is investing in fulfilment and IT infrastructure to support this medium-term growth. Relative to peers, long-term margin potential, however, remains less clear.

“The medium-term margin target was dropped and we also see limited scope for leverage in fulfilment costs over the next four years given the need to invest in additional warehouse capacity, delivery proposition, and the changing nature of logistics.”

Credit Suisse said that with the shares up about 80% since February versus the UK retail index down 7%, good news is now more than priced into the stock, which is trading at a premium to peers.

At 0930 BST, ASOS shares were down 1.2% to 4,733p.