Shore Capital upgrades ASOS on H1 profit beat
Shore Capital has upgraded from 'hold' to 'buy' after first-half earnings came in ahead of forecasts on Friday.
The broker said it sees a "better entry point" for investors with the stock having fallen to its 2008 lows, trading at an enterprise-value-to-EBITDA ratio of just 4x, compared with a peer average multiple of 12x.
ASOS said that EBITDA for the six months to 3 March would be ahead of the £34m consensus estimate due to strong gross margin development, driven by lower markdown activity and increased full-price mix, and continued cost discipline.
"Improving profitability has been a key focus for the group, with successful efforts made to reduce inventory levels and allow ASOS to operate from a more agile business model. Note Test & React now makes up more than 15% of own-brand sales and is said to be growing," Shore Capital said in a research note.
Nevertheless, the broker said it continues to be "concerned" about top-line headwinds, and so will be watching key customer metrics closely when interim results are announced on 24 April.
"Whilst we continue to state some caution relating to market pressures and customer trends, the recent balance sheet actions and progress the group has made to support profits are encouraging," Shore Capital said.
ASOS shares were up 23.5% at 315p by 0957 GMT.
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