Asos now ‘a rare buying opportunity’, says Peel Hunt

Peel Hunt reinstated its ‘buy’ recommendation on Asos on Thursday following the online fashion retailer’s shock profit warning and share price slump last month.

"As one of the leading global fashion websites, we view the current share price weakness as a rare buying opportunity," said the broker, which has a 4,000 price target on the stock.

It said that following successful trading across early autumn and what had proved to be a very strong year for full price sell through, Asos misjudged the impact of exceptional levels of discount activity across the market and failed to create a compelling enough campaign for customers, who were shopping at 50-70% discounts elsewhere.

"The profit impact was significant, a point exacerbated by the high level of above the line transition and double running costs for the US and European distribution centres," Peel said.

However, it pointed out that early indications suggest trading levels have picked up into December’s clearance activity and said February’s trading update should confirm that sales performance is above revised full year guidance of 15% group revenue growth.

Asos shares crumbled in December after it downgraded its guidance for the year as weaker trading in November and heavy discounting took their toll.

The retailer cut its sales growth guidance for the year to August 2019 to around 15% from 20-25%, while its EBIT margin expectations were reduced to 2% from 4% and the company said it would cut capital expenditure by £200m. Asos also said retail gross margin would drop by 1.5 percentage points during the year compared to previous guidance that it would be flat at 49.9%.

At 1225 GMT, the shares were up 7.2% at 2,540p.