ASOS rallies on Berenberg upgrade to 'buy'

ASOS got a boost on Monday as Berenberg upgraded its stance on the shares to ‘buy’ from ‘hold’ and hiked the price target to 4,200 from 3,000p, saying the online fashion retailer is "out of the woods" and the current valuation is a "compelling" entry point.

The bank downgraded ASOS to ‘hold’ in July after losing faith in execution during an "annus horribilis" for the company.

However, it said in a note that performance over peak trading, which demonstrated the resilience of the new logistics infrastructure, together with its extensive conversations with the company, have restored its confidence.

Berenberg said the current valuation implies limited margin recovery for ASOS, with the market overlooking five key drivers of operating leverage. It pointed to "superior order economics; ii) supplier renegotiations; iii) shipping cost leverage from localised distribution centres, iv) warehouse efficiencies; and v) non-strategic cost savings".

It also said: "With the new infrastructure holding up well over peak trading and brand positioning back on track, together with a ramp-up in US marketing and a strengthening of the management team, we believe the recent reacceleration in revenue growth is sustainable (15-20%).

"We believe the 1.4m net new customers added over P1 2020 imply revenue growth of 15-22% is achievable in FY 2020 (we forecast 17%)."

At 1250 GMT, the shares were up 3.4% at 3,455p.