Mothballed Atlanta facility could offer further upside, though declining sales trends remain a concern.
Deutsche Bank has raised its price target on ASOS PLC (LSE:ASC), the online fashion retailer, to 400p from 375p after the company's sale of its Lichfield distribution centre to Marks and Spencer Group PLC (LSE:MKS) for net proceeds of at least £66 million.
Analysts said the deal should reduce year-end net debt by £66 million from a pro-forma half-year level of £228 million, given the company's guidance for broadly flat free cash flow, while generating annual cash savings of £6 million from occupancy costs.
The warehouse had previously been written down from around £100 million, meaning the disposal will produce an approximately £85 million one-off benefit to pre-tax profit in the second half of financial year 2026.
Deutsche noted that while the sale does not affect adjusted EBITDA guidance, since the onerous lease was already treated as an adjusting item, there is potential for a further £2 million to £4 million boost to pre-tax profit from lower interest charges on the revolving credit facility or higher interest income on the resulting cash balance.
The bank also flagged that ASOS's large mothballed logistics facility in Atlanta, USA remains a potential source of further upside through a similar disposal. The Atlanta distribution centre was shuttered last year in order to move to a model where US orders are fulfilled from the UK and a smaller US site.
Panmure Liberum, which retains a 'hold' rating with a 290p target, took a more cautious view but acknowledged the deal materially strengthens the balance sheet.
The broker said net leverage could fall to just below 1.0 times by the end of financial year 2026, while the combined effect of the £6 million occupancy savings and a potential £2 million to £5 million reduction in interest costs drives a roughly 40% upgrade to its financial year 2027 free cash flow forecast to £30 million, equivalent to a 10% yield on the current market capitalisation.
Panmure said the disposal should also improve ASOS's ability to secure favourable refinancing terms ahead of its £253 million convertible bonds, which carry an 11% coupon and mature in September 2028.
However, it said it remains concerned about declining sales trends, particularly across international markets, which account for around half of group revenue.