Morgan Stanley downgrades ASOS to 'underweight'
Morgan Stanley downgraded shares of online fashion retailer ASOS to ‘underweight’ from ‘equalweight’ on Monday, cutting the price target to 2,000p from 2,100p as it argued that consensus medium-term forecasts are "still much too high".
ASOS
365.60p
16:44 14/11/24
FTSE AIM 100
3,527.89
16:54 14/11/24
FTSE AIM 50
3,970.79
16:54 14/11/24
FTSE AIM All-Share
729.38
16:54 14/11/24
General Retailers
4,604.94
16:38 14/11/24
It noted that consensus is currently expecting ASOS’ earnings per share to increase by 160% over the next two years and said this was "very optimistic".
"FY 2018/19 was very challenging for ASOS, with the company delivering only half the EBITDA, and a quarter of the earnings, that consensus envisaged at the start of the year. The market, however, is predicting that margins recover rapidly and that by FY 2021/22 earnings will be at all-time highs," MS said.
The bank said many investors see 2018/29 as having been affected primarily by operational problems.
"We disagree. In our view ASOS's problems last year were entirely consistent with much longer-term trends, with its business model being challenged increasingly both by slowing growth in the online apparel market and by rising returns rates," it said.
As a result, MS expects that there will be only a very limited earnings recovery and that consensus earnings per share forecasts for 2021/22 are around 40% too high.
At 1330 GMT, the shares were down 4.2% at 3,057p.