Citi cuts Asos price target, upgrades to 'buy'

"We believe its current liquidity is unsustainable post expiry of its revolving credit facility (Nov-24) without meaningful further cash preservation actions," Citi said.

"Specifically, we expect Asos to reduce capex (FY24e Capex: £122m versus FY23e £181m), continue to rationalise its Inventory position (FY24e Inventory -12% YoY), and further control central costs (FY24-26e Adj. EBIT margin circa 2-4%)."

As a result, Citi assume Asos’ revolving credit facility of up to £220m to Nov-24 is extended beyond FY26, but with its associated interest rate remaining sizeable (circa14%).

"We meaningfully downgrade growth given current trading and cash preservation actions (FY23/24e Revenue -9%/-17% lower) and earnings (FY24/25e Adj. profit before tax -48%/-43% lower) as a result.

"The above, coupled with a higher weighted average cost of capital (+4.5pp to 15%), leads us to cut our target price to £6.0."