Join our community of smart investors

Asos still has momentum

The online retailer has reported a resilient performance on home soil and is growing gangbusters abroad
October 17, 2017

When set against the wider retail market, investors wouldn't normally sniff at a 16 per cent improvement in UK sales. But in the case of online retailer Asos (ASC), this actually marks a slowdown compared to last year’s growth rate of 27 per cent. But should the group’s shares pay the price? The market seems to think not, given the rise in the stock’s value on results day. After all, there were several other pleasing factors to be found.

IC TIP: Buy at 5,745p

Chief executive Nick Beighton described the UK performance as “solid in a competitive and promotional market” and highlighted the fact that gross retail margins actually moved up 10 basis points from 48.5 per cent to 48.6 per cent. That’s despite widespread “price investment” – lowering prices to you and me – as well as rising cost inflation.

The international business was aided by improved distribution capabilities and a significant currency tailwind – revenues rose by 47 per cent at reported rates and by 36 per cent at constant currencies. Eurohub2, the group’s new warehouse in Berlin, opened at the beginning of March and now fulfils 95 per cent of all EU orders. Mr Beighton said the board was even exploring the idea that the German facility starts fulfilling British orders too. Last year, the group shipped approximately 50m orders worldwide and hit a record number of active customers, up 24 per cent on the previous year.

This year, sales growth is expected to settle between 25 and 30 per cent, operating margins should be stable at around 4 per cent, while capital expenditure should land somewhere in the range of £200m to £220m. That compares with £168m invested in the year just ended, but will still be largely funded through internally generated cash. Investments will be skewed towards further warehousing and technology improvements, especially as US distribution continues to expand.

Analysts at Numis expect pre-tax profits of £101m for the year ending August 2018, giving EPS of 97.9p, compared with £80m and 77.9p in FY2017.

ASOS (ASC)    
ORD PRICE:5,745pMARKET VALUE:£4.79bn
TOUCH:5,734-5,745p12-MONTH HIGH:6,497pLOW: 4,574p
DIVIDEND YIELD:NILPE RATIO:74
NET ASSET VALUE:344p*NET CASH:£160m
Year to 31 AugTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20130.7754.750.1nil
20140.9846.944.6nil
20151.1452.749.4nil
20161.4442.841.8nil
20171.9280.077.2nil
% change+33+87+85-
Ex-div:na   
Payment:na   
*Includes intangible assets of £178m, or 213p a share