Why investing in Asos (LON:ASC) now can yield good returns?

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Why investing in Asos (LON:ASC) now can yield good returns?

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 Why investing in Asos (LON:ASC) now can yield good returns?
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Highlights

  • Online Fashion Retailer ASOS is all set to move from AIM to the main market of the LSE in February 2022.
  • ASOS has witnessed a revenue growth of 5% in the four months ended 31 December 2021 despite supply chain issues and Omicron scare.

Online Fashion Retailer ASOS plans to move to the main market of the London Stock Exchange (LSE) next month after trading for 20 years on the Alternative Investment Market (AIM), LSE’s junior counterpart. This comes despite the ongoing disruptions caused by the Omicron variant of the coronavirus, which has increased the supply chain issues for retailers across the board.

ASOS trading update and performance

On 13 January 2022, ASOS plc (LON: ASC) released its trading update for the four months ended 31 December 2021. The company has delivered strong results even during these turbulent times and has reported a revenue growth of 5% in line with its guidance, despite the arrival of the Omicron variant. Even though the growth of its customer base was slower, the active customers of ASOS went up by 0.3 million to 26.7 million in this period.

Due to supply chain constraints, high freight costs, and clearance activities, its gross margin declined by 400 bps to 43.0%. However, the rate of return has stabilised in line with the expectations. ASOS’s Chief Operating Officer Mat Dunn stated that it’s difficult to predict if and when freight costs would go down this year.

The demand and returns may remain volatile in the short run due to the Omicron, but there is no change in the guidance for the year. Looking ahead, the revenue is expected to grow from 10% to 15%, with an adjusted profit before tax of £110 million to £140 million.

 

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ASOS shares surged as it announces to move to LSE’s main market

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According to Dunn, ASOS reported greater sales last year, but it was still less as compared to the pre-pandemic sales levels. Dunn is looking after the business while the search for its CEO is still on. He said that even though people are staying indoors due to the virus, they are getting dressed up for occasions at home, which has helped it in improving the sales of the online fashion retailer.

The reported increase in sales for the four months to December was just 2% while the profits fell, as the company was compelled to discount heavily and channelise more funds towards shipping its goods to the warehouses amid the rising inflationary pressure. ASOS did increase its prices to counter the impact of inflation on its profits, but it wasn’t enough, as the consumers also needed to be protected while maintaining competitiveness of prices.

Due to lockdown restrictions, ASOS sales has a significant drop in Europe, falling by 3% to £390 million. However, the UK sales grew by 13% to £645 million over the four months, as it had imposed fewer pandemic-related restrictions. Sales also increased in the US by 7%, touching £172.6 million, despite supply chain constraints and port congestion.

Moving to the main market

ASOS intends to move from the LSE’s AIM to the main market by the end of February 2022. The sponsor of the ASOS listing is J.P. Morgan Securities plc. Over 20 years of trading on the AIM, the retailer has created a good track record with a strong shareholder base. With the announcement, the shares of ASOS surged by 11.3% on 13 January 2022 and closed at 2514p. The market cap of ASOS stood at £2,512.50m as of 14 January 2022, making it one of the biggest AIM-listed companies, while giving a negative return of 53.40% to its shareholders in the last one year.

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Despite the supply chain issues because of Covid and Brexit, which have affected the returns of the business, Dunn reportedly said that this would be the appropriate time to move to the main market to raise additional funds and support the growth of the business during these challenging times. ASOS is a constituent of the FTSE AIM UK 50 Index, and it may become a part of the FTSE250 index on joining the main market. With a listing price of just 20p, the company went public in 2011, and since then its shares have soared by 11,000%!

Bottomline

Displaying robust performance amid these turbulent times, ASOS is all set to take a major step by moving to the main market of the LSE and further expand its footprint. The premium Main Market listing will be a major milestone for ASOS, and it is expected to take place by February end.

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