Liberum upgrades Asos to 'hold' after update

Liberum upped its stance on shares of online retailer Asos to ‘hold’ from ‘sell’ on Thursday following the company’s upbeat update a day earlier, hiking the price target to 5,000p from 2,450p.

Asos said on Wednesday that full-year sales and profit were set to be "significantly ahead" of market expectations thanks to a shift to online shopping during the coronavirus lockdown and as customers return fewer items.

Revenue growth is now expected to be between 17% and 19%, while pre-tax profit will be between £130m and £150m. Analysts had pencilled in around 15% growth in revenue and pre-tax profit of £53m.

The broker said Asos’ "strong" pre-close update had led it to re-appraise its outlook.

"The upgrade to our numbers off the back of better trading but significantly lower returns results in a move to hold.

"While there is much to prove how sustainable the 4% EBIT margin is, and progress has been made on costs, it is the lockdown benefit of lower returns that has driven this outcome."

Liberum now expects adjusted pre-tax profit of £136.9m for FY20 versus a previous estimate of £14m and £168.5m for FY21 versus a previous forecast of £63m. It expects sales of £3.22bn for FY20, up from a previous forecast of £3.05bn and of £3.65bn for FY21 versus £3.51bn.

Liberum said its new forecasts give Asos the benefit of the doubt, but after the strong share price rally, the shares are up with events.

The broker said it prefers platforms over own label and wholesale models hence its ‘buy’ rating on Zalando and ‘hold’ on Asos.

At 0940 BST, the shares were up 2.7% at 4,908p.