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ASOS boosted by HSBC upgrade to 'buy'

By Michele Maatouk

Date: Friday 20 Oct 2017

ASOS boosted by HSBC upgrade to 'buy'

(ShareCast News) - Online fashion retailer ASOS got a boost on Friday as HSBC upgraded its stance on the stock to 'buy' from 'hold' and lifted the price target to 6,650p from 6,250p, saying its new rating is supported by a strong net cash balance sheet.
The bank said full-year 2017 results were in line, supported by good growth across all territories and KPIs. It added that the company's commitment to higher capital intensity is necessary but should benefit long-term growth, margin expansion and barriers to entry.

"Management expect FY18e to be the peak in the capex/sales ratio at circa 8% and decline thereafter. Higher capex guidance reflects increased spend (c$40m) on the US distribution hub announced in August. This is key to the group's long-term expansion strategy but comes at a time when the group is also investing in its UK and European hubs that, when combined, will increase group revenue capacity to £4bn."

HSBC said investing in long-term growth is the right strategy for two reasons. Firstly, increased capex should be offset by the ability to deliver higher long-term growth and EBIT margins. It said that a better invested/more efficient operating platform will be able to leverage higher volume-led top-line growth and scale benefits.

Secondly, it will extend the group's 'best in class' customer service proposition and barriers to entry.

In the short term, ASOS will benefit from improved customer experience in 13 new markets. HSBC said the introduction of local language, currency, payment and fulfilment options is key to removing to barriers to growth in international markets.

"The removal of these barriers has seen revenues double and even triple in some markets in the next financial year (e.g. the US and Europe in FY11). Fewer barriers to growth should benefit FY18e."

At 1225 BST, the shares were up 1.8% to 5,603p.


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