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ASOS PLC

RBC downgrades ASOS to ‘Outperform’ from ‘Top Pick’ and slashes target price amid “heightened” macro risk

The Canadian bank cut its target on the stock by more than 50% to 3,200p from 7,700p following a dismal trading update on Monday that sent the retailers shares into a tailspin

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The bank added that there was also a mergers & acquisitions risk to ASOS

ASOS plc (LON:ASC) has been downgraded to ‘Outperform’ from ‘Top Pick’ by RBC, which also slashed its target price saying it had “underestimated ASOS's vulnerability to a more promotional market”.

The Canadian bank cut its target on the stock by more than 50% to 3,200p from 7,700p having also reduced its estimates by between 55% and 60% to reflect “the new reality”.

READ: ASOS shares slump on profit warning as it succumbs to challenging retail market

“The industry backdrop has significantly deteriorated in 2019, and despite its structural tailwinds, ASOS is evidently not immune. However, we continue to believe that its industry-leading proposition…and pace of innovation will enable ASOS to continue taking share in its large addressable market.”

The bank added that there was also a mergers & acquisitions risk to ASOS, viewing it as “a potential take-out candidate” as it believed “the challenges within the retail sector” and “high barriers to success in the internet” were likely to drive greater consolidation in the longer term.

The downgrade followed a bloodbath for ASOS’s shares on Monday after a profit warning sent the online retailer’s shares plunging around 38%.

The company said it has seen a “significant deterioration” in trading in November – a key month for the group – while increased discounting and unseasonably warm weather over the past three months reduced its average selling price.

The group added that challenging market conditions had led to the weakest growth in online clothing sales in recent years.

In mid-morning trading Wednesday, ASOS shares were down 5.6% at 2,454p.

Quick facts: ASOS PLC

Price: £22.68

Market: AIM
Market Cap: £1.9 billion
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