Berenberg lowers target price on Asos

Berenberg noted that Asos will embark on the next phase of its strategic reset in the 2024 trading year, having successfully implemented its "Driving Change agenda" and delivering £300.0m in profit improvement and cost savings. The new strategic platform aims for a return to top-line growth in the final quarter of 2024, with a more efficient and focused cost base, a more cash-generative business model, and a strengthened balance sheet.

In Berenberg's view, the stock's current valuation underappreciates the progress made by "Driving Change", or the benefit to the business that will be delivered from the next phase of the company's strategic ambition.

The German bank noted that Asos will target a return to top-line growth in 2025, following increased investment in marketing, and said that as well as generating top-line improvement, management also expects margins to expand, given the measures introduced in 2023, and now targets 2025 EBITDA margins to be in line with pre-pandemic levels of roughly 6%.

"We expect the next phase of Asos's strategic implementation to continue the positive momentum generated by Driving Change. We anticipate the return to growth under the newly outlined strategy to be coupled with a more efficient and effective business model that is insufficiently reflected in the current valuation," said Berenberg.

It added that Asos currently trades on 0.3x 12-month forward full-year 2024 enterprise value/sales ratio, being "approximately one standard deviation" below its five-year trailing average.

Reporting by Iain Gilbert at Sharecast.com