Asos in The ‘Special Situations’ Bucket, Says Deutsche Bank

Asos’ (LON: ASC) price target was cut by Deutsche Bank analysts on Monday, but that didn’t stop the online fashion retailer’s share price surging over 11% during the session.

The firm lowered its price target on the stock to 485p from 725p, maintaining a Hold rating in a research note.

Deutsche Bank told investors that Asos is currently firmly in the “special situations” bucket due to the fact it is part way through a substantial business model transformation and has had to resort to specialist lending firm Bantry Bay for debt financing.

In addition, the investment bank pointed to Asos having to raise additional equity to help with its debt burden, while they noted that Fraser’s Group has taken an over 10% stake in the business — the reason for the stock’s strong gains at the start of this week.

Press reports, while unconfirmed, suggest that at the end of last year, major Asos shareholders were approached with an offer, TheFly revealed Deutsche Bank said in its note.

Asos closed at 411.2p on Monday, continuing its rise over the past week.

Our View: While demand trends overall still skew to the downside, we have noticed a recent pickup in Twitter mentions in the last two weeks, suggesting the consumer appetite for Asos’ products may be picking up.

However, it is still too early to tell, especially as consumer happiness is still mostly negative.

By Sam Boughedda