ASOS have dropped quite significantly in the past week for no particular reason and I view this as the perfect opportunity to invest as I can see them bouncing right back up to the 5.50p mark in the next 2-3 weeks. STRONG BUY!!

This is a research note from ASOS broker 'Seymour Pierce', published this morning after today's RNS.

Pre-close update

The company confirms that pre-tax profits, pre-amortisation of goodwill, for the year end 31 March are unlikely to be less than 1.05m, on sales up 79% at 13.4m.

In addition, a lease has been signed on the new warehouse at Hemel Hempstead, at a rental, after taking into account the rent free period, of around 315k per annum.

The move to this warehouse is planned for the first week in August and should be achieved with minimal disruption to trading.

In addition, after the pre-Christmas and immediately post-Christmas trading problems, caused by having less than 20,000 sq ft of warehousing spread over 4 locations, stock levels are currently 30-40% below the pre-Christmas level.

The website has been enhanced and traffic levels are running at their highest ever. In March 2005, for the first time, the website attracted over 1 million unique visitors; and by 1 June there were over 580,000 registered customers.

The management remains optimistic about the prospects for the current year. It sees, as we do, a resilient young fashion market, together with the fact that it should enjoy a full year of sales from the departments added in the last financial year.

We estimate that a combination of additional warehousing costs and reduced margin has cost the company around 0.8m in the last financial year. With a larger warehouse these problems should not recur.

For the year being reported upon we leave our forecast at 1.05m. However, whilst we increase our turnover expectations for the new financial year from 18m to 20m, we leave our pre-tax forecasts unchanged at present. This is because of it being early in the new financial year, and, secondly (and probably much more importantly), the execution risk connected to the warehouse move. Should this go according to plan, then there should be considerable room for upgrades.

Given the growth potential in future years, as well as the possible upside in the new years forecast, the shares remain a BUY.

Lets read between the lines of the Seymour Pierce post (thanks marketmaker). Without the disruptions the results for last year would have been pbt of 1.85m on sales of 13.4m. Take the revised figure of 20m for current year, up 50%, likely to be cautious if the proportion of hits becoming sales is retained, then projected pbt should be 2.75m, not 2.2m. Understandable that SP should leave well alone at this stage, at least until the warehouse move is completed. That is a pe of around 16 which is very low for a company expanding at 50%+ p.a. An sp of 1 and a pe of 30 would be more appropriate. Won't go there yet, of course, but once we see the Q1 trading figures and have an updated forecast from SP then we should get that sort of movement, essentially a return to the trend line before the hiccough. Have topped up at 55.25p on MWMI principle!

Eric

From Hemscott today:

'ASOS - Thursday 9th June 2005

The online fashion retailer saw its shares slide despite a reassuring trading statement but we see no reason for the continued weakness. While there is an argument for letting the shares settle before buying, the growth potential makes them look increasingly attractive.


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Asos expects pre-tax profits for the year ended 31 March 2005 to be in line with expectations. That does leave us a bit in the dark, as Asos is little covered, but house broker Seymour Pierce was looking for 1.05m before today's statement while Shore Capital hoped for 1/5m. The group also report that sales for the period were up 79% at 13.4m. All that is lacking is a dividend.

The retailer, which aims mainly at women in the 18-34 age range, is optimistic that it can resist the high street slowdown, given that its main business is trading via its website.

Chief executive Nick Robertson says: 'Young fashion appears to be more resilient to macro economic pressures.'



Following a re-jigging of the retail website, ASOS say traffic levels are running at their highest ever. In March 2005, the website attracted 1m customers for the first time, and by June there were over 580,000 registered customers.

ASOS is confident that it has overcome the bottlenecks experienced pre-Christmas 2004, when warehouse capacity fell short, costing the company around 0.8m.

The company will relocate to a new 70,000 square feet warehouse at Hemel Hempstead in August; well up on their existing 20,000 sq ft of warehouse space. Robertson says the move to the new site should be completed with minimal disruption to trading. The move will not affect trading immediately because stock levels are 30-40% lower than pre-Christmas levels.

Seymour Pierce analyst Richard Ratner recommends a buy, off the back of strong sales growth forecasts and hew will look to upgrade his profits forecasts if the warehouse relocation goes according to plan.

The shares, which almost made 80p late last year, have tailed off recently, with a dip of 5.5p to 55p today. The prospective PE is 19.5 times but forward earnings growth of 66.7% offers the chance that the shares will recover.

Full year results will be announced in the second week of July.'

I recall Lemminginvestor doing a post on the potential for ASOS early this year. Basically, the message was that there is no real finite limit on how long they can grow for. Tesco have managed growth for an extended period, as have HSBC, but in the end of the day they are constrained by phs=ysical expansion of their locations. ASOS are still penetrating their chosen market for fashion-conscious younger people. Not for them the constraints of the High Street retailer. They could widen their focus, increase their product range, they could migrate to the US, to other geographical markets; they could increase the portals, e.g. Amazon, which direct you to their site(s). So what is their growth potential? That of NEXT? But then they do not have the ohysical constraints. They can expand to the US just by the marketing investment and building warehouses. And what capital do they need for such steps?: relatiely little; manage it out of cashflow. What about digital TV a la Ideal Direct? Difficult for competitors to break in and, even if they do, it just helps the market.

My point is that ASOS seem comfortable in handling a 75% or so growth rate in revenue with at least equal growth in profits. There is certainly a decade of expandsion at this rate. That's a compound 75% with a starting figure, say of 2m (correcting for the Christmas blip) leading to a 2015 pbt of 600m and a cap say of 20bill or 400 per share. A tad optimistic perhaps! Best to just tuck them away for 10 years and use them for the pension scheme!

Eric

Very good Eric but i hav'nt got that long, im getting old, 1 will do me fine thanks.

jimmy b,
you and me both, I have tucked a few away for the grandchildren!!!!

jimmy b; SEADOG: Utter rubbish, nobody is as old as me, but I don't give away numbers for fear they'll shovel the other foot into the grave.
But ASC has the power to keep us young and I'm thinking of climbing aboard for the recovery because apart from the storyline,in my view their website, their shop window, has that indefinable 'chic' to be found nowhere else. But I'm not the best judge of these things, and I would be interested to hear from younger members, or their children, if this is a common view. How for instance do people think it compares with the new Froogle shopping site.
sd.

What a load of optimistic twaddle that gue EWRobson posted yesterday - obviously the Rioja talking! Having said that, I was chatting away (to myself, as usual) on the SEO bb about S-curves: all about the three phases of a product life-cycle: essentially the early-birds who make the market; the growth phase and the saturation phase. We'll accept we are in the growth phase with a gradient of 75% per annum. may vary between 50% and 100%. The key question is 'how long does it go on for?'. Well, what is the market size. The basic point is that the market for ASOS, fashion conscious young people, is defined by the total fashion market and it is defined on a world-wide basis. So their penetration is still miniscule: 500K registered users against 5 million in the UK say and 500 million worldwide. I'm happy to settle for a 10-bagger over a 5 year period!

Eric

Actually im not that old, howevever i do have three niece's and they have been buying clothes since last year from the ASOS site,,and they all say that the quality of the clothes is very good, unlike other sites they have bought from.
Now they are buying all sorts of trinkets from there..
squidd, i don't know the Froogle site , i shall have a look..JB..

Last week, I was thinking of climbing aboard ASC and queried the competition from Froogle, but co-incidentally, over the weekend, my small grandson was 'borrowed' by a fledgling O/L fashion house for a photo shoot; it has given me an insight into the mushrooming growth of a new cottage industry in competition with ASC. A search on google then brought up almost 1M UK references to O/L ladies fashion retailers, so it is now beginning to look to me as though this sector is as crowded as gambling and telecoms and I won't be buying ASC.
Meanwhile the grass looks greener over at PCM but this could be because google hasn't yet got the measure of China.
sd.

Hmm. Seeing this morning's price leap, have to think again.
sd.

Should of bought last week squidd, maybe the drop was just a temporary glitch.

Positive comment in the Independent on Saturday listed ASC as one of five AIM stocks to follow.

The sp has been trading in the 55/60 range for a few weeks now and that is boucing back off my line of resistance and perhaps forming a consolidation for a higher move when the results come in. SD

Squidd - I always like two pubs in a road. It creates more business for both of them overall, and I'm happy to back ASC's dominance in its chosen market which seems a little different from O/L. But both contribute to the increasing culture of shopping on line which is good.

Still holding ASC and anticipate the current chart formation (is it a flag? somebody technical, please) to break north at the appropriate moment.

sd

sd: suspect it is a flag, but suggest you call it (baby) bunting!

squidd: having given a fundamental view above, suggest you look at the ASC chart for last year. First, ASC have not lost volume, so that the glitch was a profit one due to stock-holding problems. Second, the growth rate should be confirmed at the 2004 level which means, in turn, that the sp graph should pick up where it left off. It seems most unlikely that the stock problems will re-occur, although the market will want to see them installed in their new warehouse. There is, IMO, negligible downside against an upside, initially of 70p to 80p in last autumn's trading range but probably fairly smartly to 1+ by the end of the year. Suggestion to you and others is to take a stake and add as the story unfolds. The cottage industry is no problem, indeed a blessing as it gets people involved in internet buying.

Eric

E.W.R.: I am extremely grateful for your post. I continue to watch ASC and as said earlier, believe that their website has some indefinable 'chic'. I was also much impressed by a couple of glimpses in recent TV news items showing the frantic activity - a kind of well organised chaos, inside their modelling area.
But my very recent brush with a competitor in a tiny cottage industry, prompted me to search for other cottage industries which collectively might offer real competition, hence my browse through google which turned up almost a million references to online ladies fashion retailers. Of these, Froogle on its own seemed to be a small threat so I posted my earlier query about the competition.
I will continue watching. Meanwhile, I have a holding in PCM which I think could turn into the Asian ASC and believe that Mrs EWR also holds.
Regards, sd.

Eric,
Don't think its a flag, as flags are usually preceeded by an almost vertical movement of the sp on heavy volume and terminate after one to three weeks with a further upward(bullish) movement (or if bearish, downward) , this has gone on longer, and at the moment there is no sign of a continuing upward movement as there should be with a bullish flag. If you are right a flag is a strong continuation pattern. SD

Eric,
They gave up bunting long ago its all nylon now, moving with the times. SD

Well, if it's not a flag and bunting doesn't exist any more, it must just be a triangle shaped thingy (tst in the trade)!

sd