Broker tips: Asos, John Laing, Softcat

Liberum upped its stance on shares of online retailer Asos to ‘hold’ from ‘sell’ on Thursday following the company’s upbeat update a day earlier, hiking the price target to 5,000p from 2,450p.

Asos said on Wednesday that full-year sales and profit were set to be "significantly ahead" of market expectations thanks to a shift to online shopping during the coronavirus lockdown and as customers return fewer items.

Revenue growth is now expected to be between 17% and 19%, while pre-tax profit will be between £130m and £150m. Analysts had pencilled in around 15% growth in revenue and pre-tax profit of £53m.

The broker said Asos’ "strong" pre-close update had led it to re-appraise its outlook.

"The upgrade to our numbers off the back of better trading but significantly lower returns results in a move to hold.

"While there is much to prove how sustainable the 4% EBIT margin is, and progress has been made on costs, it is the lockdown benefit of lower returns that has driven this outcome."

Liberum now expects adjusted pre-tax profit of £136.9m for FY20 versus a previous estimate of £14m and £168.5m for FY21 versus a previous forecast of £63m. It expects sales of £3.22bn for FY20, up from a previous forecast of £3.05bn and of £3.65bn for FY21 versus £3.51bn.

Liberum said its new forecasts give Asos the benefit of the doubt, but after the strong share price rally, the shares are up with events.

The broker said it prefers platforms over own label and wholesale models hence its ‘buy’ rating on Zalando and ‘hold’ on Asos.

Barclays upgraded John Laing to ‘overweight’ from ‘neutral’ as it pointed to "signs of a turn in the tide of negative news".

The bank, which cut its price target to 365p from 395p, said the stock’s valuation does not reflect an improving outlook.

"After a series of NAV downgrades in recent reporting, we see the net asset value risks reflected in John Laing's 286p share price," it said. "With the valuation of 0.85x NAV at a marked discount to its longer term (1.01x) and to its peer group average (1.17x), we see potentially better near-term newsflow unreflected in the current share price."

Barclays said second-half events that could deliver both a better NAV profile and better sentiment include: a refreshed strategy from new chief executive Ben Loomes, a pickup in portfolio activity, and further investor demand for high quality and ESG (environment, social and governance) compliant real assets.

Berenberg downgraded its stance on IT infrastructure provider Softcat to 'hold' from 'buy' as it highlighted an uncertain outlook.

The bank, which lifted its price target to 1,250p from 1,100p, said Softcat is a good business. It upgraded the shares to 'buy' in March, but said that after a 50% rally "the hype has perhaps surpassed reality".

While Softcat will likely beat consensus and Berenberg has lifted its estimates by almost 10%, it said the outlook for next year "is far more uncertain".

"There are also compelling reasons why Softcat's set-up is less well suited to winning business in a pandemic versus some peers. Namely, it lacks internal services and system integration capabilities and does not have the same experience in dealing with large multi-national IT infrastructure designs that some peers have."

Berenberg said that in a period of uncertainty, customers want someone who can do it all and Softcat is lacking in some areas. As a result, large client and public sector contracts are more likely to go to peers such as Computacenter.

"With the headwind that will inevitably emerge in its SME business, we think now is the time to take the stock to hold."

The bank reiterated its 'buy' rating and 2,450p price target on Computacenter.

It noted that the company's US and European peers have reported strong second-quarter numbers, confirming the bank's view that being overweight large corporates and the public sector is the best position from a customer perspective.

"Equally, we have seen value-added service capabilities determine the growth rates of many of these businesses. In our view, Computacenter has the perfect offering and client set at this point to take market share," it said.

"Why the stock still trades on a 25% discount to European resellers is beyond us. It does, however, create one of the most compelling investment cases in our telecommunications, media and technology (TMT) universe."