ASOS 'ripe for an approach', UBS names Amazon as potential buyer

UBS said that after a "very tough year" for ASOS, management's strategic decision to invest in local logistics, pricing and IT to maintain its sales growth is correct, even though it comes at the expense of short-term margins.

"However, in our view global online fashion is becoming more competitive and longer-term [...] margins will be dictated by execution and efficiency," the bank said.

"In this regard scale and platform are paramount, and we think significant value could be added to ASOS via a combination with a larger online retail organisation which could amortise IT and logistics costs and improve the transactional FX risk."

Analysts reckon that Amazon, which is looking to increase its international and clothing exposure, could benefit from an acquisition of ASOS, which would "increase the strength and number of brand relationships and give access to a fashionable, low-price own-label offering".

They predict that, under Amazon ownership, ASOS' current margins could double because of the US group's advertising relationships, brand awareness, customer base, logistical infrastructure and IT platform.

UBS has reiterated its 'buy' recommendation for the UK stock and lifted its target price slightly from 4,000p to 4,050p. This new target is based on a combination of 50% discounted cash flow (3,100p) and 50% on a takeover premium (5,000p).

ASOS shares were up 5.4% at 2,027p by 09:56 on Monday.