ASOS PLC (LSE:ASC) received a mixed response from City analysts when it announced the Topshop disposal in September, but recent analysis from Berenberg suggests there could be more upside for the shares than previously thought.
Berenberg slapped a 'buy' rating on the online fashion portal in a research piece published this week, with a share price target increased from 490p to 600p.
The turnround plan from ASOS was commended by the German bank's analysts, who said it is “beginning to bring stability with a lowered and refreshed inventory position on the wholesale side and an improved cost-to-sales ratio, even in the face of top-line pressure.”
A balance sheet reinforced by the £180 million disposal of the Topshop and Topman brands was also highlighted.
Berenberg added that own-label clothes, which makes up around 40% of sales, is an “important driver of traffic to the site and believe that this brand remains valued by customers.”
Analysts added: “The own label lends exclusivity and this product carries a gross margin of about (five percentage points) higher than wholesale third-party branded merchandise.
“The appeal of the ASOS brand should be further enhanced by the development of its speed-to-market ‘Test and React’ product, which now accounts for 10% of own-label product.”
ASOS shares were swapping for 428.4p on Wednesday morning.