Asos Could See Mid-Term Recovery in Sales – UBS

Asos shares were upgraded to buy this week as the online fashion retailer looks to address “key areas” following its recent results.

That’s according to UBS analysts who lifted Asos to Buy from Neutral, although lowered its price target to 550p from 660p in a note. UBS stated that Asos was addressing its key areas of underperformance and had confidence in its profit and cash flow delivery.

The firm also believes the company’s turnaround under CEO José Antonio Ramos Calamonte is “underappreciated.”

“The margin rebuild and profit recovery from this plan are underappreciated, in our view,” the investment bank said in its note to clients.

Asos continues to implement its Driving Change strategy as it aims to become more profitable and cash-generative. This resulted in inventory levels declining by 30% in its recent results, while its new Test & React mode reduced lead times.

UBS also added that it remains confident in the online fashion retailer’s mid-term recovery in sales, as its strategy will hope to drive sales in FY2023/24. However, group revenue fell 10% in the year ending 3 September as its product offering struggles to resonate well with consumers battling soaring inflation.

Asos’ focus on profitability will be key going forward, especially as consumers’ income continues to be tested. However, BofA analyst Geoffroy de Mendez recently double-downgraded Asos to Underperform, adding that its balance sheet continues to be stretched even after recent refinancing. 

The Asos share price has fallen almost 30% so far this year. However, it may see a slight recovery over the coming months as speculation surrounding a potential takeover by Frasers Group continues. The company increased its stake in ASC earlier this month.

By Jamel Boughedda