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ASOS tipped to lift full-year guidance next month as City broker reinstates ‘buy’ recommendation

The online retailer shocked the markets with last month’s profit warning but Peel Hunt expects it to have enjoyed a strong Christmas which should see it lift guidance in February’s trading update
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Peel Hunt reckons the shares are worth £40

Analysts at Peel Hunt have reinstated their ‘buy’ recommendation for ASOS plc (LON:ASC), claiming that the online fashion retailer’s plunge in December has thrown up a “rare buying opportunity”.

Last month, the one-time ‘King of AIM’ lost its crown when it issued a shock profit warning, telling the market that it had seen a “significant deterioration” in trading in November.

READ: ASOS slumps on shock profit warning

It also blamed an unseasonably warm start to winter and heavy discounting for the warning, which resulted in more than 50% being wiped from its value.

Peel Hunt thinks the real issue was management’s cock-up with Black Friday – an increasingly important time for online retailers.

“We believe ASOS misjudged the impact of exceptional levels of discount activity across the market and failed to create a compelling enough campaign for customers, who were shopping at 50-70% discounts elsewhere,” read a note to clients.

It reckons trading picked up again in the build-up to Christmas and New Year which should see it reverse last month’s guidance cut in its upcoming trading update.

Guidance to be lifted next month?

“Trading misstep aside, ASOS remains the go-to platform for young fashion, offering significant medium-term growth prospects across the US, Europe, UK and wider global markets.

“We look for February’s trading update confirm that sales performance is above revised full-year guidance of 15% group revenue growth.”

ASOS shares are up 6.4% to 2,521p on Thursday morning which is still some way short of Peel Hunt’s price target of 4,000p. This time last year, the stock was changing hands for more than 7,600p.

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