Liberum says Asos first-mover advantage eroded

5th Aug 2014 13:51

Asos has lost most of its first-mover advantage and remains overpriced, despite a 62% fall in the value of the shares since the start of the year, according to broker Liberum, which expects the shares still to fall 38% to meet its target price.Analysts at the broker have been looking at the online fashion retailer's competitors and notes that, while UK weather has been helpful, as Next's results showed, overall clothing sales trends have been volatile and young fashion market remains highly competitive with the New Look website offering up to 60% off, Topshop 75% off, Asos itself highly promotional without being on full sale. "Our view remains that Asos's first mover advantage is being eroded as the competition steps up - note Topshop chose to sell through Zalando, not Asos - and we do not think that Asos has a sustainable long term competitive advantage to its business model" the broker said in a note. "At the same time, we think that the cost of growth that is still implied in the valuation is likely to continue to come in ahead of consensus expectations."Forecasting underlying pre-tax profits of £42.5m for the current full year, Liberum is slightly below company guidance and consensus of around £45m and with the forex headwinds havings not worsened materially but nor having abated. "A cursory check of the Australia website suggests that zonal pricing is not yet in place. This is likely to put continued pressure on international sales in the fourth quarter." A pre-close update is scheduled for 16 September, but well ahead of that the broker reiterates its 'sell' recommendation. OH