Asos will finish year with a flourish, ShoreCap says

Confident that recent allegations about 'exploitative' working conditions at its Yorkshire warehouse will not blow up into the sort of storm that has engulfed other retailers, broker Shore Capital reiterated its 'buy' recommendation on Asos as it expects the online fashion retailer will "finish the financial year with a flourish".

The collapse of the pound due to Brexit uncertainty is forecast by ShoreCap to contribute around an 8% currency tailwind during the fourth quarter, leading to a boost in pre-tax profits to £63.1m and earnings per share to 68.8p.

The broker expects to see an acceleration in sales in the US and EU, with currency tailwinds supporting top-line momentum to at least £1.44bn.

"We have been bullish about the prospects of the business in the former; we view the online fast fashion market in the US as underdeveloped compared with the domestic UK market," wrote analyst George Mensah, who said it therefore represents an particularly strong opportunity for those businesses such as Asos, as well as rival Boohoo.

After Asos last month settled its trademark disputes, it now has "a free run at the athleisure market, a strong growth play in apparel", the analyst said, which he puts into perspective by noting research that shows a higher proportion of women had bought trainers than high heels.

"The move into the athleisure market is already in its infancy; Shore Capital notes that the company has rolled out a product proposition called Looped, which we see as the initial steps into the athleisure crossover market with a strong focus on casual footwear."

Also commenting on last week's article by Buzzfeed alleging "exploitative contracts" and "an overbearing security regime" for Asos warehouse staff, Mensah noted Asos invested close to £3m last year improving facilities at the warehouse, that around 80% of the 4,000 or so staff in Barnsley are on permanent contracts, with no zero hour contracts in place and all staff paid above the National Living Wage.

"While some headlines have been sensationalist, we wish to emphasise that any investigation into the working practices of Asos by the Department for Business, Innovation and Skills is part of a wider general inquiry into industry practices rather than a public investigation into a single enterprise," he wrote.