Citi cuts Asos price target, upgrades to 'buy'

Citi upgraded online fashion retailer Asos on Friday to ‘buy’ from ‘neutral’ as it cut its price target to 600p from 780p.

"We believe its current liquidity is unsustainable post expiry of its revolving credit facility (Nov-24) without meaningful further cash preservation actions," Citi said.

"Specifically, we expect Asos to reduce capex (FY24e Capex: £122m versus FY23e £181m), continue to rationalise its Inventory position (FY24e Inventory -12% YoY), and further control central costs (FY24-26e Adj. EBIT margin circa 2-4%)."

As a result, Citi assume Asos’ revolving credit facility of up to £220m to Nov-24 is extended beyond FY26, but with its associated interest rate remaining sizeable (circa14%).

"We meaningfully downgrade growth given current trading and cash preservation actions (FY23/24e Revenue -9%/-17% lower) and earnings (FY24/25e Adj. profit before tax -48%/-43% lower) as a result.

"The above, coupled with a higher weighted average cost of capital (+4.5pp to 15%), leads us to cut our target price to £6.0."