Asos broker round-up: Exane, Citi, UBS, Cantor, Barclays
Broker reaction to full year results from Asos was mixed, coming after three profit warnings from the online fashion retailer in the last seven months. Here are a selection of views from analysts before and after meeting with management.
ASOS
351.20p
16:34 10/05/24
Exane
"After a rocky (to say the least) six months, management came out fighting at the full year results presentation.
"With expectations reset, plans are in place to address the issues encountered - key IT updates are back on track (zonal pricing), logistics improvements are ongoing, price investment is being rolled out to regain customer traction.
"Management also took the opportunity to dismiss a lot of the recent speculation - brand relationships if anything are strengthening and expanding and key personnel remain committed to the longer-term opportunity.
"Uncertainties and risks remain, and there is a lot for the business to do, but this was an encouraging conference call reminiscent of the better times the business has previously enjoyed."
Citi
"On the back of this statement we do not expect consensus forecasts to change significantly. Driven by management guidance, consensus currently forecasts circa £45m August 2015 PBT, with EPS 41.6p, up 1% year-on-year.
"ASOS combines a leading fast-fashion label, high class logistics and customer fulfilment with online presence and engagement that is world class; no other company we know combines all three so effectively in our view.
"On top of this, the own label offering provides all profit of business; competitors should struggle to match a company that isn’t trying to make any money."
Citi's recommendation is a 'buy/high risk' with a modest target price of £26.
UBS
"With sales guidance of 15-20% for FY15 and EBIT margin guidance for the next few years we think focus can return back to the operational improvements being made to the business and how this should impact their relative competitiveness.
"Whilst we think guidance remains cautious we envisage no change to consensus at this stage. With net cash of £74m there is cash available to cover the £110m of capex over the next two years.
"Only £3m of net insurance benefit has been booked in relation to the warehouse fire with remainder of circa £5-8m to come next year. We suspect that this will be reinvested into the pricing or quality of the offer and will not hit the bottom line directly but it does provide a useful buffer."
"The zonal pricing is to start ahead of peak, new apps are being released across various countries and delivery options and times are improving globally.
"Finally, in FY16 the local language site rollout will likely recommence which we believe is one of the best drivers of sales
growth."
UBS issued a 'buy' and a set a 4,050p price target, valuing Asos on a combination of 50% discounted cash flow (3100p) and 50% on a takeout premium of 5,000p.
Barclays
"Full year results contained no surprises in terms of numbers but we believe ASOS’s decision to establish a COO role strengthening its management team will be likely received positively by investors."
Profit before tax of £46.9m was "optically 5% better" than consensus expectations but the number included a £2.8m non cash charge coming from the management incentive scheme that was reversed as targets were not hit."
"It is important news in our view that Nick Beighton, current CFO will be taking on the newly established role of the COO while ASOS will be looking for a new CFO. This will likely be viewed positively by investors, some of whom have been claiming that in the current phase of growth ASOS needs further management additions.
"ASOS’ share price is more than 70% off its recent highs and the management’s reiteration of the midterm guidance of £2.5bn sales attempts to offer stability in investors’ sentiment.
"We believe that the midterm share price move from here on will depend on ASOS’s ability to both hit its 15-20% sales growth target in FY15 while delivering on the infrastructure targets without any further delay."
Cantor
“There will, we believe, inevitably continue to be questions over the robustness of the company’s model, particularly its development strategy overseas after the recent revision to FY15 sales forecasts in international across the US and Europe.
“More worrying perhaps, the company’s recent ‘damage limitation’ strategy has, we believe, impacted the entrepreneurial ethos and held back its evolution.
“Indeed, even after the business has been put on an even-keel the current longer term earnings profile is likely to resort to a more pedestrian 10-15% per annum growth rate.”
Cantor held its ‘hold’ and set a miserly target price of 2,000p.
Liberum
“Full year results this morning are a touch above guidance, although that counts for little as these were much reduced following the profit warning in September. Consensus earnings estimates have fallen by over a third since March.”
“Infrastructure investment continues to bite and there are also no immediate indications when the company can properly expect to leverage this investment. For the bulls of the stock, the investment case is based on pain now for a future gain.
“We base our ‘sell’ case on the fact that there is little visibility on when we might see such a gain. In the meantime, the sole support for what remains a stratospheric rating, the high sales growth, is dwindling."
N+1 Singer
“Whilst customer KPIs are positive, and the database is +25%, we note that zonal pricing roll-out is slightly delayed (until pre Xmas) and no further internationalisation in other markets will be tackled for around 12 months pending a correction in growth and KPIs in existing overseas markets...
“ASOS has been impacted by multiple different factors over the last 12 months, namely a warning in relation to overseas trading and margin mix/promotions, higher China losses, disruption and double running from warehousing/infrastructure development, and July’s warehouse fire.
“Recovery from these setbacks could take some time and there is clearly uncertainty over the long term margin capability which until very recently hadn’t been priced in to the valuation. However, management has now bought itself some time to tackle the issues with its flat FY’15 PBT guidance.
“Key to sentiment this year will be visibility on the extent of, and reaction to, price investment in key markets, and the time needed to move to profit in China.”
Bernstein
"We believe investors will be encouraged by these results given that guidance has been held and the company has suggested good progress on operational initiatives. We believe once zonal pricing is launched, investor attention will turn to volume growth as a leading indicator of sales growth reacceleration.
"We rate ASOS 'outperform', target price £34."