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Asos cautious on future demand

Pre-tax profits more than quadrupled this year, but future demand looks shaky

Asos cautious on future demand
  • Asos profits soared as more ‘20-somethings’ shopped online 
  • Demand is still uncertain as young people are hit by economic impact of Covid-19
IC TIP: Buy at 5054p

A 10pm curfew in pubs, restaurants and bars has cut off the nation’s nights out – and with it the need to buy a new outfit. But that has not stopped Asos' (ASC) stylish ‘20-something’ target customers, who have flocked instead to ‘staying-in’ fashion. Indeed, the online retailer’s consumer base swelled by 3.1m this year, leading to the surge in pre-tax profits.

Even during lockdown, the company noted more deliberate purchasing behaviour as both site visits and orders increased. But its average basket value was largely flat, as the shift to casualwear over occasionwear pushed the average selling price (ASP) per unit down 3 per cent. 

Regionally, revenues were up by around a fifth in both the UK and the European Union. The US, too, posted sales growth of 25 per cent – but was turned on its head in the second half as it experienced the most severe Covid-19 disruption. Asos noted that the region has not recovered at the same speed seen in other markets. This has been compounded by restrictions on commercial flights, which has made shipping more expensive to the US, as well as the rest of the world. 

While the company referenced a solid start to the year, management struck a cautious tone on how long demand can hold up – especially as young people are among the worst hit by the economic impact of coronavirus. But Asos said that it still expects to deliver continued improvement in underlying profit, even excluding the Covid-19 tailwind. 

Healthy trading this year has bumped the group to a net cash position of £408m (ex-lease liabilities), compared with net debt of £91m last year. This should help to fund capital expenditure, which management plans to ramp up again to £170-180m this year, compared with £116m in 2020. 

Shares retreated 7 per cent following the release of the results, in a sign that investors have grown anxious over the sturdiness of demand for Asos’ products. But the company has adapted quickly and successfully to coronavirus disruption so far. We are optimistic that it can do so again if restrictions tighten. Buy. 

FactSet consensus estimates put EPS at 113p for the year to August 2021, from 126p in FY2020.

Last IC View: Buy, 5,298p, 7 Oct 2020

ASOS (ASC)    
ORD PRICE:5,054pMARKET VALUE:£ 5.04bn
TOUCH:5,052-5,058p12-MONTH HIGH:5,548pLOW: 975p
DIVIDEND YIELD:naPE RATIO:40
NET ASSET VALUE:812p*NET CASH:£94m
Year to 31 AugTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20161.4443.041.8nil
20171.9280.077.2nil
20182.4210298.9nil
20192.7333.029.4nil
20203.26142126nil
% change+20+331+330-
Ex-div:na   
Payment:na   
*Includes intangible assets of £348m or 349p a share