Asos still has 'significant opportunity' in UK and abroad, says Berenberg

Asos shares have lost 11% over the past month and ahead of quarterly results later this week are offering a good entry point, said analysts at Berenberg.

Although investors might worry about the teetering UK consumer outlook they should be reassured by the e-commerce resilience over the last three months period and look ahead to a "significant opportunity ahead" in the UK and overseas.

"With 60% exclusive product, a rapid and responsive supply chain and unique content, its proposition is differentiated and defensible" in the UK, Berenberg said, believing New Look’s 8.6% share of the 16-45 year old UK market demonstrates that ASOS with 4.2% share still has a significant room to grow.

Also noting that more than 60% of revenues are already generated outside the UK and the recent expansion of the European distribution centre and increasing localisation can accelerate international growth.

"We believe any concerns around the competitive threat from Amazon are misplaced. ASOS has established a differentiated and defensible best-in-class proposition for its 20-something fashion-focused customer base.

"It generates circa 60,000 pieces of unique content every month and generates c60% of revenues from product exclusive to its platform, including 45% from the ASOS brand."

Berenberg upped its earnings per share forecasts by 1% and 4% for the full year and next year and increased the price target on Asos shares to 6,800p.

Analysts at the German bank think investors should focus on return on capital employed, not margins.

"With the business generating post-tax ROIC of circa 18% and sufficient cash to fund its own growth, management is rightly focused on top-line growth over operating leverage."