ASOS burning through cash, says Morgan Stanley as it slashes price target

The bank, which rates the stock at 'underweight', said that despite slower growth, ASOS no longer seems able to self-finance its expansion as it has done for the last 15 years and appears to be burning through cash.

ASOS had £173m of net cash on its balance in September 2016, but burned through £13m in FY16/17 and a further £117m in FY17/18, leaving it with just £43m in September this year.

MS noted that ASOS has spent more on capex in the last two years - around £400m - than in the previous 15 put together. However, only one-third is going on new warehouses, it said, adding that the proportion of total spending being capitalised has risen from 9% to 17% over the last three years.

As a result, "something's got to give," MS said. "Having increased its borrowing facility to £150m, it has sufficient liquidity for the near-future. However, we now expect circa £90m of net debt in August 2020, when ASOS could find itself uncomfortably tight on liquidity ahead of peak trading. Unless cash flows improve, it may have to scale back its spending and growth ambitions."

The bank cut its earnings forecasts by between 7% and 17% over the next three years, leaving it 26% below consensus earnings by FY20/21.

At 1105 GMT, the shares were down 6.2% to 4,225p.