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Asos sell-off 'overdone', says Citi

By Oliver Haill

Date: Monday 16 Jul 2018

Asos sell-off 'overdone', says Citi

(Sharecast News) - With Asos shares down 25% from highs earlier this year on various investor concerns, analysts at Citigroup said that this was an overreaction and upgraded its rating on the shares to 'buy'.
Since getting close to £78 in March, shares in the online clothes retailer have been dragged below £58 by worries about increased capex guidance, lower than expected sales growth, US sales tax and implications about the impact of GDPR.

"We think these concerns are overdone and see the current price as a compelling entry point for long term growth opportunity," said Citi's Dan Homan.

As management will need to continually balance growth opportunities against profits as the AIM-listed company expands its operations outside of the UK, Homan said he and his colleagues believed the company "would benefit from raising finances and sacrificing near term profit in order to grow more aggressively and capture a larger share of potentially substantial markets".

Estimates for the current year remain unchanged, but the analysts marginally cut their forecast for sales growth to 23% for 2019 and a 75 basis-point gross margin decline due to losing US import duty benefits, this results in a 1% reduction in profit before tax and sees the earning per share estimate drop to 115.6p from 116.5p.

Citi's target price, which is derived from a 10-year discounted cash flow analysis, remained at £70.


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