Morningstar | Launching Coverage of ASOS With No-Moat, Positive Trend Rating, and GBX 3,480 Fair Value Estimate. See Updated Analyst Note from 18 Feb 2019
We are initiating coverage of ASOS, one of the leading European e-commerce players in fashion and cosmetics focusing on the 20-something demographic segment, with a no-moat, positive trend rating and fair value estimate of GBX 3,480 per share. The shares appear moderately undervalued, trading about 15% below our fair value estimate.We believe ASOS is well positioned to benefit from the continuous shift from brick-and-mortar to online shopping for fashion items as well as to expand its market share, especially in its newer markets like continental Europe and the United States. We expect increasing online penetration to be driven by demographic changes, improved online fulfillment and delivery infrastructure (better sizing, faster and free delivery and returns), and higher convenience and better product choice, especially given the downsizing of brick-and-mortar retail. ASOS' share gains in its new markets should be supported by improved local infrastructure and attractive own-label and partner-brand offerings exclusive to ASOS and targeting niche 20-something consumers.
Although with its active customer base of over 35% of its target 15- to 35-year-old population in its home U.K. market and around 1,000 brands represented on the platform, ASOS does benefit from some traces of network effect, cost, and intangible asset advantages, we don’t see these as strong enough to grant the company a moat just yet. Nonetheless, we believe that the network effect and intangible asset advantage should strengthen over time as more data is accumulated and better analytics result in improved conversion rates and reduced return rates.
Our valuation implies 15% average top-line growth for ASOS over the next 10 years. We expect operating margins to reach over 6% by 2028 versus 2% in 2019 and 4% over the last three years as warehousing capacity ramps up, automation bears fruit, and fixed operating costs scale better.
ASOS and its subsidiaries (together, the Group) is a global fashion retailer. The Group sells products across the world and has websites targeting the U.K., U.S., Australia, France, Germany, Spain, Italy and Russia. Co. creates and curates fashion, face + body products for every fashion-loving 20-something.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.