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!!

Patsym
See R.N.S. 19/8/04 1101am under ASC for confirmation

BOUGHT INTO ASOS AT 60.5P, SO AM WONDERING WITH LAST NIGHTS GIG BUY AND DIRECTOR BUYING IF THERE MIGHT BE SOMETHING IN THE PIPELINE TO COME? ANYONE GOT ANY VIEWS!!!!!!!!

i thought they were due to give a trading update in Sept + i believe they also have there AGM. Other than that, the fact that their sales are growing like crazy and they are being forecast for a 1.00 share price inside next few months. Not much else going on!!!

When the Finance Director resigns the standard rule for the investor is to look out for trouble! However in this case it looks to be a smooth changeover, with a 2 month handover. The RNS message goes onto suggest the FD has resigned to spend more time with his family. If he lives in Wiltshire and travels into London every day, and has to put in the hours expected by the beancounters in a thriving company, I suspect the journey times at the end of a long day are a real problem. So this changeover does not look a worry, and the Market Makers/Companies Broker seems happy as well. The new FD is reported to have good retailing expertise so all should be fine as ASOS go from strength to strength. We will have to see what the subsequent press comments are though to be sure. Presumably the upcoming AGM will be the time and place to make the new introductions and to dispel any uncertainities.

Does anyone have any other views on this, and is the exercise of the Option likely to be a problem?

johngtudor

Discussion with a broker today who suggested that the slight easing of the price was due to the dilution caused by the granting of options.

Its pretty clear why the FD, John Morgan, has resigned. He has options for 600K shares at 3.5p, 250K at 4.5p and 133K at 10.25p. In other words, he has made his fortune, so why should he travel or even work? Morgan must have played a very significant role in the success of ASOS so he deserves a slap on the back. The transfer of responsibilites is clearly being well handled. I can't see any cloud on the horizon. The earlier concern that they might not withstand competition from the high street retailers, switching to the internet, seems of little concern given that they clearly have captured a key section of the market. Buy now or regret it as there is likely to be positve newsflow during September.

Eric

eric well said,not only sept for positive newsflow,the rest of the year should be there best ever in the run up to xmas.cheers woodie

EWRobson

Thanks for the feedback. Much appreciated. I too think September will be a good month for ASOS.

Good morning all. I am a lot happier now , the new FD does seem to be switched on as regards his retail experience lets hope he does as good a job as the outgoing man. Looking forward to the AGM. I think the key is the dates on which the options can be exercised???

SEADOG
The application for listing for 607,914 clearly refers to John Morgan's first tranche of options which is listed in the Annual Report (impressive document - I liked the birds!). Its not a big deal, except for him, as the volume is pretty typical of a day's trading (several times higher in July and I suspect later this month). His other options (the lesser amounts) can be exercised from 1/05 and 2/06. Lord Ali's options are for nearly 1.6m shares at 12.66p, exercisable at any time. Still not particularly significant. ASC's cash generation is so significant with a cash balance at the year end of 1M+ it seems unlikely that they will need to raise any more capital. It would be hardly worth it for the new warehouse project, given that the directors won't want their holdings diluted either. Morgan's comment is "..we are confident that we will continue to generate cash from operating activities due to increasing profitability and the increased strength of our balance sheet leading to improved credit terms from our suppliers." (music to the ears!). I can't see them wanting any diversification, except for addition of product lines. Its hard to imagine a more positive scenario.
Eric

You paint a very optomistic and positive scenario indeed. Then why have there been so many sellers around in the last few days. Are there any whispers about the last few months trading ?

Rake
It will be interesting if your questions flush out anything adverse because I haven't seen it. All the pointers seem to be going the other way. In fact, the price has been fairly steady this last week with a reasonable match between buyers and sellers (remember a lot of poeple are sitting on substantial profits).

Earlier this year they were happy to claim 5th place in the Hitwise top 10 fashion internet retailers; in June (Annual Report) they were second:
Next 8.17%
ASOS 3.66%
Additions Direct 3.08%
La Redoute 2.81%
then come Boden, Topshop, Figleaves, M and M Sports, Mothercare and River Island. ASOS are increasing market share in a market growing at a predicted 54% (on line shopping overall) this year.
I have just received an analysis from Hoodless Brennan & partners who have been contacting ASOS shareholders, proud of the fact that they recommended ASOS at 4p. It strikes me as a balanced analysis. Amongst bull points they include "strong marketing and unique range of celebrity inspired clothing; recruitment of experienced buyers/introduction of new prodict lines; improving inventory and stock control". Bear points are "highly competetive market with low barriers to entry; threat of more aggressive e-initiatives from the high street majors; demanding forward PE of 40x; valuation assumes continued high growth for several years; susceptible to downturn in consumer confidence". They note that ASOS now stands (at 60.25p) at a premium to the market with a price to sales ratio of 5.3x compared to 1.6x at Next and 3.6x at Amazon (though bearing in mind that Next is much more mature and does not ahve the growth potential of ASOS), "There is considerable interest & momentum in the stock, but the firm must prove that it can continue to deliver sales and profit growth into the long term, whilst keeping operating costs/stock levels in check". They refer to the house broker's (Seymour Pearce) forecast for the current year to march 2005 is 1.3m. "This looks achievable on current progress but places them on a fwd PE of 40x. To justify the current valuation there can be no slip up in the 47% EPS growth forecast from 05 to 06 which could be impeded by competitive pressure or an economic downturn." They conclude with a HOLD recommendation; the fact that they are writing to clients who will have bought earlier may be the reason for not recommending a BUY. However, the whole note says HOLD.

It might help to give my personal attitude to the share which I believe is realistic. I boght at prices from 23p to 32p and took a profit on quarter of the holding at around 45p after the results. I then watched the price rise again in Lat July to around 70p in response to their trading statement (I think also investment briefings) before receding back to around 40p where I switched back in on the view that the profit taking was overdone and the larger investors were on holiday. My main point is that the cap. is still opnly 40M which means many larger investors do not yet have a stake. Couple this with the broker forecast of 1 and the highly likely positive news flow starting this month and probably going through to Xmas and you have a strong reason for buying (I have a gut feel the sales projections are under-stated). I would buy more if I had the money. Having said that, it is not a share to lock away; you need to keep a look-out for any negative symptoms/ adverse comment. I will sell progressively as the price rises but, as I did last month, prepared to switch back to buying if I have under-estimated the performance. I would rate the downside risk as 'quite low'.
Hope this helps (do challenge me on anything)and good luck, Eric

Eric

Well done that man, a very thorough and interesting dialog and analysis of ASOS. You have certainly done your homework, I only wish I could read a report like you. (I though the birds a bit on the sultry side myself)

EWRobson


Thank you for an excellent analysis with which I broadly agree. In particular your response to recent share price movements. As you say the buyers have on the whole matched the sellers recently, accounting for some consolidation of the share price at current levels. The charts are still positive with both the RSI and MACD in the right frame. My only niggle is the recent resignation of the FD, although we have agreed everything seems to be OK, why did John Morgan recently purchase shares at 57.5p and then a month or so later...resign and exercise his option. We have set out the reasons, which sound sensible, but without any inside knowledge we will only know for sure at the AGM. As to his other share options the company has not yet commented on whether they remain in force, it all depends on the terms and conditions in force both at the time of the grant and now that he is leaving. We will have to wait and see on that one. However I do understand that the site is rising in popularity amongst men as well as women, insofar as it is a good place to find Xmas presents for mothers/sisters/girlfriends etc. The potential is enormous with the right controls in place, which it seems they have. So lets hang on for the ride. Do you all agree or are we missing something? JT

EW Robson

Thanks for the info from the Hoodless note. In terms of valuation they are right to say that the forward PE looks demanding based on Seymour Pierce's current estimate of 1.36m PBT for the year to 31st March 04. What I would point out is that this estimate is, by the broker's own admission, conservative. ASOS delivered sales growth of 83% for Q1 (April - June 04) vs SP's forecast for the year of, I think, 45%. While comparisons will get progressively tougher following last years strong growth, the most recent evidence is that growth has accelerated if anything (average monthly sales, registered users, average basket etc). Q2 saw a number of important marketing iniatives such as the placement of inlay cards in every Girls Aloud CD single, and every single CD WOW product delivered to the UK mainland. ASOS also is one of only 6 merchants selected by HSBC as part of their student current account offer. A couple of days ago the ASOS affiliate manager announced partnerships with US and European affiliates as part of their "soft" launch into new territories. Given that the ASOS affiliate program was recently voted No.1 by UK affiliates and accounts for 25-30% of the company's sales, this is good news.

Most importantly, the trading statement on September 15th should include details of a major new plank of the group's strategy which should help it further differentiate its offering and further improve margins - ASOS are set to launch their own clothing line of "as seen on" products. By sourcing direct rather than from London's wholesale markets, and with the buying scale they now have, ASOS are in a strong position to become the destination for celebrity inspired fashion.

I would also say that comparing valuation ratios with mature high street retailers is an innapropriate tool. ASOS is largely immune from many of the buying/seasonal risks faced by high street ranges (because they can change their ranges almost immediately if they are not selling). The threat of a slow down in consumer confidence caused by rising interest rates and a slowdown in the housing market is also likely to affect ASOS much less than the high street because of the demographic of its core customer base - teenage girls.

BH

Excellent note. I think you are spot on.When you view the potential, which seems to be increasing all the time,I do not see a 1 as a target price anymore. ASOS look a good long term prospect, it is after all trading in the way the world is doing business in the new millenium and especially the teenagers - who lets face it have ther money to spend and specifically like to spend it on the products ASOS are marketing!It has to peak at some time , but that point could be way off in the future

I have enjoyed the excellent notes posted today - very encouraging! As a new entrant to the trading game I bought ASOS right at the end of July @58p. August was a scary month! I am still in there though and now at break-even which is a relief.(Two other stocks (DES and JKX)I bought at the same time obviously think its funny to try the same thing...)
Below is a copy of a report on ASOS which appeared in The Momentum Investor Stockmarket Newsletter this month. It makes encouraging reading and it will be interesting to see how the market reacts to the AGM and trading statememt next week. It is very much in line with the other positive postings above. The newsletter recommends this stock as "worth watching". I agree, to my mind there is only one direction it is heading on the back of all this news which is North.

Over the month (August) we met up with Nick Robertson, chief executive of ASOS, a fast growing on-line retailer of fashionable ladies clothing in famous celebrities, at its head office in central London. We first highlighted ASOS in May when the price was 21.5p and in an apparent flashback to the wild dot com days the shares have spiked almost vertically to a high of 68p before the recent pull back. This euphoria partly reflects the fact that it has reached the nirvana like state that all e-tailers dream about, where breakeven has been passed and with operational infrastructure in place, a large proportion of future sales increases will fall straight to the bottom line. Latest forecasts from broker Seymour Pierce, bear this out with ASOS pre-tax profit expected to triple to 2m in the next two years. But ASOS market value of 36m still doesnt fully reflect the growth opportunities, with independent market research group, IMRG, predicting that clothing will account for 1.2 billion of on-line sales this year.
ASOS is now moving its back-end logistical functions to a new warehouse of over 20,000 square feet while a further move to a much larger place is planned next year. ASOS is now a picture of rude financial health. Full results for the 15 months to 31/3/2004 showed sales rising 84% to 7.5m triggering a first time pre-tax profit of 0.6m and earnings of 1.2p. Thanks to a strong cash inflow of 1.1m ASOS is now in its strongest ever financial position with net cash balances of 1m.
ASOS improved financial resources have been put to good use with Robertson recruiting two buyers in March from TK Maxx and Bentalls to take the group into menswear and accessories respectively and this was quickly followed by the appointment of a jewellery buyer in June. A new health and beauty buyer will arrive this September, while ASOS is also looking to move into footwear. Overall ASOS sells 650 product lines and it is ambitiously hoping to expand this to 1500 in 18 months time.
Another key aspect of this business is keeping lead times as short as possible and the current period is an acceptable 3-6 weeks. Short lead times also help ASOS maximize its big winners by reordering quickly after it runs out of stock.
ASOS currently received 500,000 unique monthly users, up over 40% from the previous year, but the value of its burgeoning reputation is shown by the fact that 60% of new customers return at least once, while over 70% of sales are from repeat customers. However, the most important indicators are the conversion of website visits into sales and the average value of orders. Its latest results showed a sharp improvement in the conversion rate from 3.8% to 4.5% partly because ASOS can now afford to buy in a wider range of sizes. In the early days ASOS could only afford stock size 8 12s, only half the available market, but this range has been expanded to size 6 16, while the company is also bringing in a wider range of colours. This trend will be enhanced further as the new product categories, such as jewellery and health & beauty come on stream.
ASOS is also benefiting from customers making add-on purchases with its average basket size increasing from 26.50 to 31.50 since January. This is thanks both to dropping the spending threshold for free postal delivery from 50 to 40 but also adding cross-selling functionality to the website. After a customer clicks to purchase a product the website moves to an intermediate page before the checkout, which displays products of a similar type bought by other customers simple but surprisingly effective.
In spite of rapid growth, ASOS has stayed focused on quality control, with returns remaining fairly static at 19%, and other initiatives, such as providing more detailed product on the website should keep this figure stable.
Marketing efforts this year will cost 0.8m which will be immediately written off against profit. Half will go on advertising in glossy lifestyle magazines, such as Heat, Glamour and New Woman, adverts which have a rate card of 8,000 each and go to a well targeted audience of around 50,000 consumers. The remainder is spent on affiliate deals, linking itself to other complimentary brands which bring in 30% of the sales total.
One useful dividend from its marketing efforts is that a database of registered users has grown to almost 340,000 people, who are sent regular e-mails about latest offers at little extra cost.
Although ASOS is concentrating predominantly on the UK market is has recently soft launched in the US, Canada and parts of Europe. This involves no formal advertising, while the product is packed and shipped from the UK, and overseas sales currently chip in a useful 6% of the total.
With ASOS shares up over 400% since February and 142% since our May tip, investors are clearly factoring in an outlook with clear blue skies. Sceptics might argue that its larger rivals are likely to make life tougher by throwing more cash into their on-line presence but nevertheless, the overall size of the pie is increasing so rapidly that this shouldnt be a problem. VISA have calculated that UK card holders spent over 2.4bn online just in the first quarter of 2004, a year-on-year increase of 123%, showing that consumer fears about the integrity of internet security and reliability of parcel deliveries have well and truly subsided.
Seymour Pierce forecast pre-tax profit of 1.36m this financial year, rising to 2m in 2006, for earnings of 1.8p (no tax) and 2.5p (10% tax). The shares remain well worth watching.

I am delighted that my two notes (308 and 310) flushed out such positive responses. For me, it proves the value of contributing to this bb. In one sense you are giving away your own perspective but in fact receiving perspectives from those with advantageous starting points.
baheid (313). Your hands on input is particularly valuable and I hope you will continue to impart these nuggets. Your last paragraph puts well the advantages that ASOS hold over the High Street retailers. Own branding must have great potential.
willfagg (314). Hits the nail on the head. 1 is only 68m cap. Subject to continuation of good management, ASOS appear to have a far better scenario than lastminute.com for sailing to the mid-caps and staying there.
SALKELDJP (315). The copy of the Newsletter report is very helpful as again it gives good inside view resulting from interview with chief. exec. The conclusion "the shares remain well worth watching" needs the additional comment "from the inside", i.e with a significant stake.

Sticking my neck out, 58.5p will prove a good buying opportunity so suggest selling some of those dogs and building up the stake this week. With announcements due next week, there is bound to be weekend comment and a rising market. Look forward to chewing the results with the team!
Eric

So M&S are offloading their retail web site to Amazon! Must be good for ASOS whose only focus is the on-line business.

VERY VERY QUITE TODAY FOR ASOS TODAY,ANY COMMENTS.

ateeq180
Suspect it is just a pause for breath. Press comment and attention is elsewhere. Those buying ahead of the results have probably bought at the end of last week and yesterday. I believe it is a buying opportunity with good news anticipated on Friday; should be Wednesday (edit)
Eric