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Highlights:
- Berenberg raised Asos's target price by over 20% to 600p, citing the company's turnaround progress.
- Debt restructuring and joint venture moves have reduced Asos’s net debt by around £150 million.
- The 'Test and React' sourcing model, now 10% of own-label sales, is seen as a key part of the retailer's recovery strategy.
Berenberg has increased its target price for fast fashion retailer Asos (LSE:ASC) by over 20%, raising it from 490p to 600p, citing positive developments in the company’s turnaround strategy. The broker maintained its 'buy' rating, expressing confidence that Asos has the time and resources needed for a successful recovery.
Analyst Anne Critchlow noted that Asos’s strengthened balance sheet has given management the flexibility to execute its product and operational turnaround. This includes a refreshed and more efficient inventory strategy on the wholesale side, as well as improvements in the company’s cost-to-sales ratio, despite facing revenue challenges.
Critchlow highlighted the retailer’s recent debt restructuring, which, alongside the partial sale of the Topshop brand into a joint venture, has reduced Asos’s net debt by around £150 million. The company is expected to end its financial year on 31 August with net debt of £312 million, down slightly from £320 million last year.
A key component of Asos’s recovery plan is its speed-to-market 'Test and React' sourcing model, which allows the company to quickly develop new garments and adjust to market demand. This approach now accounts for 10% of Asos’s own-label sales, with minimal markdowns due to more accurate, short-lead-time sourcing.
Berenberg also significantly raised its EBITDA estimate for the recently completed financial year to £80 million, up from a previous estimate of £38 million and surpassing the top end of company-compiled consensus.
Asos shares were up 0.2% at 429.5p by 1102 BST.
