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Goldman Sachs upgrades ASOS on higher revenue forecasts

By Michele Maatouk

Date: Tuesday 17 Jul 2018

Goldman Sachs upgrades ASOS on higher revenue forecasts

(Sharecast News) - Online fashion retailer ASOS rose on Tuesday as Goldman Sachs upped the stock to 'buy' from 'neutral' and lifted the price target to 7,900p from 7,100p on the back of higher revenue forecasts.
The bank said it expects sales to grow by around 24% in FY19/20, which is the top end of the group's mid-term guidance of between 20% and 25%, and reach around £4.5bn/£7bn by FY21/24. Goldman expects revenue growth to be supported by accelerating growth in the US and continued online penetration in Europe.

Meanwhile, it said that growth in categories such as beauty and activewear should help support overall growth, but these are incremental opportunities rather than a step change in the near term.

"Our analysis suggests that for every £1 of capex, ASOS has historically generated circa £7 of incremental revenue over the next three years (we reflect only circa £4 of incremental revenue in our forecasts). We also view beauty as an incremental opportunity. Amid tough competition, we expect ASOS to continue to differentiate versus incumbent and newer players (e.g. SheIn/Zaful)."

Risks to the bank's buy rating include lower-than-expected sales growth in the UK or internationally owing to execution issues, and higher-than-expected promotional activity to achieve sales growth or to clear inventory which could negatively affect gross margin.

In addition, GS said incremental pressure on gross margin owing to import tax and product mix could affect near-term profitability/operating cash generation, limiting ASOS's ability to further invest in growth projects.

At 0930 BST, ASOS shares were up 1.8% to 5,884p.

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