Asos Plc is the UK’s worst-performing stock of 2022, plunging 78% as cash-strapped Britons cut spending on clothes and the online retailer struggles with soaring costs and rising debt.
(Bloomberg) — Asos Plc is the UK’s worst-performing stock of 2022, plunging 78% as cash-strapped Britons cut spending on clothes and the online retailer struggles with soaring costs and rising debt.
The online-only fashion firm is poised to finish the year at the bottom of the leaderboard of FTSE 350 Index members as a consumer squeeze adds to a selloff in global technology and internet stocks spurred by rising interest rates.
Asos — which was a winner during Covid lockdowns — only joined the UK benchmark this year after moving its listing to the main market from London’s AIM venue for growth firms.
Online retailers have been “hurt by the perfect storm of difficult pandemic comparisons, inflation and rising interest rates” putting pressure on earnings valuations, according to Bloomberg Intelligence retail analyst Tatiana Lisitsina.
Asos has also faced internal turmoil, with a new chairman and chief executive in the last 18 months and the company’s interim finance chief announcing her departure earlier this month.
A spokeswoman for Asos declined to comment on the share price performance.
In October, new CEO Jose Antonio Ramos Calamonte laid out a well-received restructuring plan, including writing off as much as £130 million ($157 million) of stock and vowing to cut costs.
The company said it expects a loss in its fiscal first-half but that things should then improve.
Asos’ plunge means the stock is cheap versus historical levels. It trades at about 25 times forward earnings, down from almost 90 times at the 2020 high.
It’s still much pricier than the FTSE 350 Retail Index, which trades at 10 times forward earnings.
A potential cooling of inflation and rates expectations next year could benefit the valuation — though many challenges still remain, with a recent survey by consulting firm KPMG pointing to Britons cutting spending on non-essentials next year.
Among analysts, 15 of 31 firms tracked by Bloomberg have ‘hold’ ratings, while the others are split between buy and sell.
The average price target suggests that shares will rise 58% in the next 12 months — but that would only leave them around where they were in August.
Asos’ talks with lenders will be another thing to watch in 2023.
Although the retailer successfully renegotiated the terms of its £350 million ($422 million) revolving credit facility in October, the extension only lasts until 2024 and Asos will need to renew discussions with lenders on the loan again next year.
Meanwhile, Frasers Group Plc — owned by billionaire high street magnate Mike Ashley — has taken a 5% stake in the company.
News of Frasers’ investment in October spurred a brief rally in the stock, though Bloomberg Intelligence’s Lisitsina is doubtful that a full takeover could materialize.
“Asos has been trading at a discount more than once in the past without any buyer coming forth, which makes us skeptical,” she said.
A spokeswoman for Frasers declined to comment.
Read: Tanks, Pubs and a Pawnbroker: UK Stocks’ 2022 Winners and Losers
–With assistance from Ellie Harmsworth.
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