Citi downgrades Asos, prefers Boohoo

10th Nov 2014 11:30

Even though the online apparel retail market has "substantial structural growth potential", Citigroup has cut its rating for Asos from 'buy' to 'neutral' following recent share-price strength."Online apparel retail is still in early growth phase. Mobile internet evolution, increasingly convenient payment and delivery options, better product display and low penetration in many European markets will drive over 10% annual growth for many years in our view," Citi said.The bank has compared Asos with newly-listed rival Boohoo and German peer Zalando, saying that the three retailers have distinct business models. Boohoo (not rated) "comes out on top" and is Citi's most preferred company, with a "concise" product range and high profitability.With 100% of Boohoo's products own-label and 70% coming from in-season ordering, the company "has a profitability profile far in excess of the other players".Zalando (not rated), meanwhile, has "cutting-edge technology and logistics" and is currently Europe's most-visited online fashion destination.However, Asos is a "jack of all trades [but is] current struggling to master them", Citi said."Asos combines a very good own label offer with a broad third party offering. However, its sourcing does not match boohoo's and its IT and logistics do not match Zalando's. We think it can catch up but recent execution issues will take time to work through."Despite the downgrade, Citi has lifted its target for Asos shares from 2,600p to 3,100p.The stock was down 3.7% at 2,563.5p by 12:34, but has still risen nearly 30% over the past month.