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On Thursday, HSBC analyst Charlie Rothbarth revised the firm’s stance on ASOS (LON:ASOS) Plc (ASC:LN) (OTC: ASOMY), upgrading the stock from Reduce to Hold, while adjusting the price target to GBP2.70 from the previous GBP3.20. The company, currently valued at $403 million, has seen its stock trading near 52-week lows according to InvestingPro data. The change comes after a significant drop in ASOS shares year-to-date, which Rothbarth attributes to concerns surrounding the US consumer market, a segment that represents approximately 12% of the company’s sales.
ASOS’s stock performance has been notably weaker compared to its peers, with a near 40% decline compared to The Hut Group (THG LN) at -17%, and Boohoo (LON:BOOH) (BOO LN) at -23%. Despite the substantial refinancing risks highlighted by a GBP253 million bond with a 14.84% yield due in 2028, Rothbarth believes that these factors are now adequately reflected in the stock’s current price. InvestingPro data shows the company maintains a healthy current ratio of 1.61, with liquid assets exceeding short-term obligations.
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The analyst’s decision to shift to a discounted cash flow (DCF) valuation methodology from adjusted present value (APV) is influenced by several strategic changes at ASOS, including the mothballing of the Atlanta distribution center in the second half of the year. This move is projected to contribute approximately GBP15 million to EBITDA from FY26 onward, a significant boost considering the company’s current EBITDA stands at -$382.5 million.
Rothbarth’s revised price target is influenced by lower sales forecasts, which are expected to result in reduced free cash flow in the later years of the valuation. The analyst also takes into account the additional GBP50 million from the 1.2x principal repayment of the recent bond refinancing, compared to the GBP253 million principal. This adjustment reflects a more conservative outlook on the company’s future financial performance, with InvestingPro data showing revenue decline of 18.13% over the last twelve months and analysts not anticipating profitability this year.
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