Berenberg lowers target price on Asos

17th Apr 2024 10:00

(Sharecast News) - Over at Berenberg, analysts lowed their target price on fast fashion retailer Asos from 510.0p to 490.0p on Wednesday as it lowered its gross margin assumptions to reflect the negative impact of discounting during the first half of the fiscal year.

Berenberg said Asos was making "significant progress" with its strategic endeavours, which were setting the business up for growth in Q4 FY 2024, with management tracking ahead of its full-year inventory reduction target and the business achieving "excellent results" in its Test & React model.

The German bank stated strategic progress was improving the operational agility of the organisation, which will culminate in "a higher level of profitability", in its view.

Berenberg, which has a 'buy' rating on the stock, said the key change to its earnings forecast was related to Asos' gross margin profile.

"We have lowered our FY 2024E gross margin assumption to reflect the negative impact from discounting in H124 and have assumed a circa 110 basis point year-on-year decline in H224E, as we continue to expect the discounting of aged stock to be a margin headwind. This reflects a downgrade versus our prior forecast which projected H224E to be equal to the margin recorded in the prior comparative period. We continue to forecast an adjusted EBITDA margin of circa 6% in FY25E as we expect the clearance of aged stock to deliver significantly improved margins," said Berenberg.

"ASOS trades on 0.3x 12-month forward EV/sales, c1 standard deviation below its five-year historical average."

Reporting by Iain Gilbert at Sharecast.com