Shore Capital has reiterated its buy recommendation on ASOS PLC (LSE:ASC) after the relaunch of Topshop, an iconic UK brand the online retailer acquired in 2021.
The relaunch, which included a catwalk in Trafalgar Square featuring Cara Delevingne, marks the brand’s return to a standalone website with plans for a renewed physical presence.
Topshop was once a staple of the British high street, generating over £1 billion in sales and £100 million in profit at its peak.
ASOS later sold 75% of the brand to Heartland, a retail group with 2,800 stores worldwide, for £135 million, while retaining a 25% stake. In its last financial year, Topshop contributed about 5% of ASOS sales, equating to roughly £200 million.
A strategy beyond fast fashion
Analysts at ShoreCap view the Topshop relaunch as a positive step in ASOS’s strategy to reposition itself away from fast-fashion rivals such as Shein.
The group is aiming to offer fewer, more curated items and to focus on quality and relevance rather than the mass-volume model.
ShoreCap also highlights recent improvements in stock management, operations and the use of artificial intelligence to enhance both customer experience and fulfilment.
ASOS has guided to EBITDA growth of at least 60% this year, between £130 million and £150 million, with margins at 5%. In the medium term, it is targeting a return to revenue growth and adjusted EBITDA margins of 8%.
Valuation appeal
Despite ongoing challenges from weak consumer confidence and intense online competition, ShoreCap points out that ASOS trades on just six times forecast enterprise value to EBITDA, compared with a peer average closer to ten times.
With improving profitability, lower capital expenditure as a share of sales, and free cash flow expected to turn positive after this year, the broker sees significant upside potential.
The shares were up tuppence at 309.5p.