ASOS: ‘100% Profit Beat’ Cheers RBC Capital On Trading Update


Pure-play online fashion retailer ASOS (ASC) has announced that it now expects sales and profit for the full year to be ‘significantly ahead’ of market expectations.

In a pre-closing trading statement, ASOS revealed that it is guiding for revenue growth of 17% to 19% (vs consensus of 14%),with PBT of £130m to £150m (vs towards £70m previously guided and consensus of £56m).

That’s on the back of stronger than anticipated underlying demand and a more beneficial returns profile- with a significant and sustained reduction in returns rates since April. According to ASOS this reflects customer demand for ‘lockdown’ categories, such as activewear and face + body, and a prolonged shift in customer behavior towards more deliberate purchasing.

“ASOS has continued to deliver a strong operational performance and year-on-year improvements in profitability this financial year as a result of a focus on trading dynamically and managing the business rigorously” the company stated.

Looking forward, ASOS acknowledges that the consumer and economic outlook remains uncertain, writing that while the recent trading dynamics will deliver FY20 sales and PBT ahead of market expectations, the extent of this outperformance beyond this financial year remains to be seen.

Following the update, RBC Capital’s Sherri Malek reiterated her buy rating on the stock with a 5,000 Gbp price target (13% upside potential). “ASC offers a unique risk/reward profile in the European Internet sector” she explained, adding that lingering scepticism over the sustainability of profit growth has prevented the shares from participating in the sector’s re-rating.

Indeed, the shares continue to trade on a near trough EV/ Sales multiple of 1.0x, not participating whatsoever in the sector’s 20% re-rating this year, the analyst wrote on August 5. ASC also trades at a 30% discount to its historical EV/ EBITDA, despite a strong recovery in earnings growth.

“We remain bullish, both on ASC’s growth opportunity and ability to rebuild its margin and therefore view valuation as particularly attractive” Malek concludes. She believes that ASOS can more than triple its sales in 10 years, which would still only imply a global online market share of c.1%. (See ASOS stock analysis on TipRanks).

Overall, the stock scores a cautiously optimistic Moderate Buy Street consensus based on 10 recent buy ratings vs 5 holds and 1 sell. Meanwhile the average analyst price target stands at 3,869 Gbp.

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