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Morgan Stanley upgrades Asos as growth expectations have been 'fundamentally reset'

The investment bank's upgrades upgraded its rating on the online clothes retailer to ‘equal-weight’ from ‘underweight’

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Morgan Stanley still expects Asos will need a fundraising in the medium-term

Morgan Stanley said the Asos PLC (LON:ASC) sell-off has gone far enough after the shares fell by almost two thirds over the past year.

The investment bank upgraded its rating on the online clothes store to ‘equal-weight’ from ‘underweight’, but cutting its share price target to 2,100p from 2,200p after last week’s profit warning.

READ: Asos warns of 70% plunge in annual profits as teething troubles with new warehouses persist

Morgan Stanley said, after Asos has invested heavily in recent years in order to keep driving growth, now that cash has become a constraint, “it is apparent the days of profitable 20-25% growth are long gone and expectations have now been fundamentally reset”.

Recent industry data suggests the online market in the UK is growing at just 2.8%, so analysts expect growth headwinds to persist.

“The company faces operational issues at a number of its warehouses, which remains a concern and puts further pressure on already depressed operating margins.”

Morgan Stanley still expects a fundraising in the medium-term, but near-term concerns have been allayed with a new, five-year, £350mln revolving credit facility.

Current share price levels “more fairly reflect our views of the business”, the analysts said, with its forecasts now 40% below consensus EBIT for 2021.

Quick facts: ASOS PLC

Price: 4408 GBX

AIM:ASC
Market: AIM
Market Cap: £44.35 m
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