Peel Hunt downgrades Asos, cuts price target after profit warning

Peel Hunt downgraded its stance on Asos on Monday to ‘add’ from ‘buy’ and slashed the price target to 5,000p from 6,500p after the online fashion retailer announced the departure of its chief executive and warned on profits.

Asos said FY22 sales growth was expected to be between 10% and 15%, with first-half revenue growth slowing to mid-single digits. This reflects tougher comparables in the first half, particularly in the UK and industry-wide supply chain pressures.

The group also said it expects FY22 adjusted pre-tax profit to fall to between £110m and £140m. If you take the mid-point of the range, this is around 35% below the market consensus forecast of £193m.

Peel said it has cut its forecast for FY22 in line with guidance to around £124.3m. The broker said confidence in the future centres squarely on Asos’ ability to replicate the UK’s success across international markets.

"Share price recovery will be linked to next month’s capital markets day and the new CEO," it said.

"We think Asos is extremely well placed to succeed, though expect the shares to struggle to deliver progress ahead of the CMD and appointment of a new CEO, taking our recommendation back to 'add' and target price to 5,000p following today’s downgrades," Peel said.

"Trading on 9x EBITDA, the valuation is difficult to ignore if Asos can demonstrate improving customer engagement and traction in the US and European markets, with underlying free cash flow more than sufficient to fund the group’s growth requirements."

At 1445 BST, the shares were down 14% at 2,380p.