Asos PLC will next month hold its first ever capital markets day and this could be the catalyst to help its shares reach a fair value around 85% higher than current levels, reckons broker Berenberg.
On 13 October, the online fashion retailer will report final results, for which the company has already provided fairly recent guidance so expectations are “well set”.
Looking ahead to the 2022 financial year, Berenberg said in a note to clients that its revenue forecasts are in line with the City analyst average, but believes there “is upside risk stemming from the ramp up of the Topshop brands, the Nordstrom partnership in the US and the potential for a release of pent-up demand as COVID-19 restrictions subside”.
However, reflecting greater headwinds from heightened freight rates, warehousing and Brexit-related costs, Berenberg has trimmed its underlying profit (EBIT) margin forecasts for the new year by 30 basis points to 4.5%.
“Given the temporary nature of some of these headwinds, the changes to our outer-year margin forecasts are minor,” with Asos still expected to generate over GBP100mln of free cash flow.
The capital markets day on 14 October is “perhaps the more important day” for Asos, Berenberg’s analysts wrote.
“We believe that a well-communicated strategic update could significantly improve sentiment and provide an attractive catalyst, particularly given the depressed level the shares are currently trading at,” they said, pointing to good precedents for CMD’s acting as catalysts in the sector and leading to share price rises on the day.
“We believe that investors will be most keen to hear the company’s plans to reaccelerate growth in the US – which we believe can be underpinned by the Nordstrom partnership – and also gain more clarity on long-term margin potential.”
The analysts reduced their target price to 6,500p, which compares to a price of just under 3,500p ahead of the close on Monday.