Berenberg ups target on Asos following warehouse transformations

Analysts at Berenberg bumped up their target price on shares of Asos, telling clients that with much of the "transformational" heavy lifting associated with its warehouse transformations was now in the rear view mirror, the company was in a position to leverage its investments.

Those investments extended to improving the customer proposition which should underpin topline growth in the European Union, while in the States the online fashion retailer had begun to raise its brand awareness.

Meanwhile, upgrades associated with its Truly Global Retail upgrades - which were due to roll-out in 2019 - would allow it to control merchandising by region and boost availability and full-price sell-through.

Local currency sales were seen jumping by about 16.0% in the first quarter of the financial year 2020.

"While credibility has clearly been damaged in terms of execution, we believe such improvements will ultimately leave ASOS in a strong competitive position once complete," analysts Michele Wilson, Graham Renwick and Michael Benedict said in a research report sent to clients.

In financial year 2019, the firm's group sales increased by 13%, but retail gross margins shrank by 250 basis points and its profits before tax by 68%, largely due to operations issues together with dual running and inefficiency costs linked to its warehouse transformations in the EU and US.

Berenberg reduced its forecasts for Asos's earnings before interest and taxes but boosted its target for the shares from 2,500.0p to 3,000.0p due to the expected reduction in capital outlays.

The broker did however keep its recommendation at 'hold'.