Asos still a 'buy' but with risks, say Barclays, Jefferies
By Abigail Townsend
Date: Wednesday 20 Mar 2019
(Sharecast News) - Barclays and Jefferies have maintained their recommendations for Asos, the online specialist, but believe there are still risks associated with the stock.
The UK retailer said on Tuesday that its new US warehouse had struggled to cope with unexpectedly high demand in the last quarter, hitting sales and forcing it to temporarily suspend promotions and marketing while a backlog was cleared.
In Europe, meanwhile, weaker consumer demand and stiffer price competition meant sales growth disappointed.
Overall, retail sales rose 13%, or 11% once the impact of the weaker pound was stripped out. That was below the 15% predicted by analysts.
Barclays retained its 'overweight' recommendation, but conceded there was both "positives and negatives".
It said: "There is food for bulls and bears. On balance we are actually marginally more positive, but there are lots of uncertainties here. The US warehouse issue doesn't build confidence in execution, and growth in Germany/France is very disappointing.
"But importantly the tone on underlying demand in the US is positive to the long-term value case.
"A new chief financial officer in April could bring further reset risk, but we believe ASOS is sufficiently capitalised."
Jefferies also conceded Asos still had "lots to do", but argued it would be "worth the weight".
It explained: "Asos' recent track record - for example, misjudging Black Friday promotional tactics - suggests that as the business builds international scale, the risk of mistakes is increasing, despite Asos' rich customer databank and technological expertise.
"To rebuild investor trust, management needs to articulate how [underlying earnings] margins will grow beyond 2019 to give the business the profit defensibility it deserves to expand sustainably for the next five to ten years."
Jefferies has a 'buy' rating on the stock, arguing that Asos' strong global brand and "technological advantage" means the "risk-rewards remains attractive". The bank also retained its forecasts for the current year on the back of "management's confidence in maintaining full-year 2019 guidance".
Shares in Asos, which is one of AIM's biggest companies, were ahead 4% by 1330 GMT.
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