Broker tips: William Hill, Asos

William Hill got a boost on Tuesday as Morgan Stanley said it was set to benefit from US casino owner Eldorado Resorts' merger with Caesars Entertainment.

The merger, which was announced on Monday, makes William Hill's "position for US sports betting "more powerful, with wider market access, boosted revenues and potential optionality on brand, database and media assets," MS said.

"With US sports worth 35-55% of the current market cap, we would buy the shares here."

MS pointed out that Caesars currently has an agreement with Scientific Games to provide its technology and pricing.

"Given William Hill is migrating its US operations onto its new technology stack in the next two months, we could theoretically see the logic for ERI to realise synergies by moving the supply of Caesars' online sports betting operation from Scientific Games to William Hill.

"Should such a scenario play out, it would create a third major brand in the US market from which William Hill would generate revenue."

The bank rates William Hill shares at 'overweight' with a 235p price target.

Analysts at UBS dropped online fashion retailer Asos from 'buy' to 'neutral' on Tuesday, telling clients that while it was turning more positive on the company's topline growth, it was less positive on its margins.

While the Swiss broker was ahead of the consensus in its 2019 sales estimates for Asos, its analysts said they were "more cautious" on the level of margin investment required to drive said growth.

Over the past six months, changes to pricing, promotions and newness had "significantly impacted Asos's top line and margins", according to UBS - which then went on to analyse how these were changing across eight markets.

UBS said that projections for improved customer acquisition through higher "newness" and more competitive pricing were behind its above consensus forecasts for topline growth in 2019 but it added that "the cost of growth doesn't seem to be easing".

The broker cut its target price on Asos's shares from 3,500p to 3,300p, explaining that its own data suggested the e-commerce powerhouse was investing more margin than previously expected in order to reaccelerate customer acquisition and growth in the US, leading it to assume it numbers would come in 20 basis points below margin guidance.

All in all, UBS said: "Ultimately, Asos's ability to deliver the future margin expansion expected by the market depends on CAC amortising over customer lifetimes.

"This year, customer acquisition cost has risen but we expect flat revenue per customer. Evidence of improving 'newness' in UBS Evidence Lab data, which Asos sees as a major driver of organic customer acquisition, is encouraging but we see no evidence to suggest this will be reflected in lower CAC."