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ASOS can rack up profits again, says UBS

The broker retained the ‘neutral’ rating as the operational issues and rising customer acquisition costs could potentially keep the firm under pressure

ASOS PLC - UBS shows optimism in ASOS’s ability to rack up profits
Profit before tax estimates were revised up 6% for FY20 and FY21

UBS has upped ASOS PLC’s (LON:ASC) price target and profit guidance as the online fashion retailer is expected to solve its operational issues and regain customer traction.

Last week shares rose more than 20% in the AIM-listed company despite it reporting a 68% plunge in full-year profit before tax and barely providing any comment on current trading.

READ: ASOS shares shine but lack of guidance leaves analysts in the dark

ASOS has issued two profit warnings over the year: the most recent in July due to teething problems at its new US and European warehouses.

As a result, the number crunchers were wondering whether the online fashion retailer’s overseas operations were fully functioning and what was happening with its profit margins.

“We do not think the ASOS offer has permanently lost traction with its core customers and expect sales growth to recover, but it may take time to reactivate customers impacted by warehouse disruption,” UBS said in the note on Tuesday.

The bank retained the ‘neutral’ rating as the operational issues and rising customer acquisition costs could potentially keep profitability and free cash flow generation under pressure, but the price target was lifted to 3,200p from 2,800p.

Profit before tax estimates were revised up 6% for FY20 and FY21 to £55mln and 77mln respectively, driven by £20mln transition costs expected to drop out, while sales growth is expected to remain flat year-on-year at 13%.

At the roadshow scheduled for this week, analysts are set to ask ASOS’s management questions on sales growth drivers, pricing strategy changes and the impact of unfavourable market conditions.

Shares were slightly up to 3,582p at noon on Tuesday.

Quick facts: ASOS PLC

Price: 2820 GBX

AIM:ASC
Market: AIM
Market Cap: £2.81 billion
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