Asos back in fashion as Credit Suisse ups price target

The bank, which has an ‘outperform’ rating on the online fashion retailer, increased its target price for the shares to 4,100.0p from 3,600.0p. It is forecasting sales growth of 11% in the second half, against consensus for a 4% decline, and a full-year earnings before interest and tax margin of 2%, up on an earlier estimate of 1%.

Credit Suisse said: “Our social media tracking shows record engagement on Instagram in May, and over the past two years, it has shown inflexion points in sales growth.”

“Asos may have been capacity constrained due to social distancing and operational considerations in its UK and German distribution centres. However, next day delivery was switched back on two weeks ago, so it appears that capacity has increased and the likely reduction from 2m to 1m should help it through peak.

“While there will be some additional costs, they should be partly offset by lower returns and promotions.”

The bank concluded: “We believe that the improving sales and margin profile under the new management team remains under-appreciated by the market.”

As at 1415 BST, shares in Asos were ahead 4% at 3,398.95p.

Earlier this year, Asos said sales had been dented by Covid-19-related disruption, falling between 20% and 25% in the three weeks to early April.