Broker snap: Earnings unlikely to slow at ASOS, S.Pierce says

17th Sep 2012 12:10

Following a meeting with ASOS, partly to discuss new forecasts following the change in its accounting date from March to August, analysts at Seymour Pierce came back reassured that earnings momentum is unlikely to slow and that there remains a wealth of opportunity to drive sales. They could not, however, identify a catalyst for a re-rating of the stock, which is valued at 39.5 times its fiscal year 2013 fully diluted earnings.That was despite the fact that the quarterly update to August, due 19th September, is forecast to be better-than-expected, particularly in the UK following a streamlining of the ranges and further investment in price competitiveness.The broker is, "expecting total sales growth +30% in the August quarter with UK +7% and International +50%, similar to the quarter trend (ended June). However, profits growth over the medium term is likely to be checked by an eventual move to global free shipping for deliveries and returns and the cost of establishing a local infrastructure in core developing markets, such as in Australia."Similarly, its analysts point out how "the development of the international business, which has grown revenues by more than 100% per annum over the last three years is still very much work in progress and management is discovering new opportunities not identified at the start of this journey."Even so, they admit that the stock remains highly rated at 51.7 times the fiscal year 2012 earnings, declining to 39.5 times in the following year. Nevertheless, Seymour Pierce is confident that the company can achieve its longer term target of £1bn of sales, as result of which it has decided to maintain its hold recommendation at the same time as upgrading its price target from 1,600p to 1,900p, toward the upper end of the recent trading range.AB