(Bloomberg) —
Asos Plc shares fell 3.1% as they started trading on the London stock exchange’s main market. Today’s decline — coming amid a broader market selloff — extends a slump that has seen the U.K. online fashion retailer lose almost two-thirds of its market value in less than a year.
After 20 years on London’s junior AIM market — during which the stock surged nearly 10,000% — Asos made the change in order to access a broader group of global institutional shareholders and to “enhance the company’s corporate profile and recognition,” according to a statement last month. The company’s market capitalization of just under 2 billion pounds ($2.7 billion) meant it was among the top five AIM-listed companies as it departed the junior venue.
“Asos’s decision to subject itself to the stricter reporting requirements of the main market may be one way of reassuring shareholders and stakeholders that the company is living up to the increasingly high ESG standards” now required, said Russ Mould, investment director at AJ Bell.
The fast-fashion company will likely be eligible to join the FTSE 250 midcap index, while missing out on the bluechip FTSE 100, Mould said.
AIM — once seen as a stepping stone for small companies wanting to list on the exchange’s main market — has been retaining companies for longer, even as their market valuations have ballooned. The venue has worked to attract a broader base of companies and improve its formerly volatile reputation. Now, it counts cancer drug developer Hutchmed (China) Ltd., airline Jet2 Plc and high-end tonic maker Fevertree Drinks Plc among its biggest members.
Asos shares have been on a downward trajectory since July, when the retailer warned of softening sales caused by supply chain pressures and continued uncertainty over Covid-19. That was followed by a profit warning in October which was accompanied by the firm’s chief executive officer stepping down after six years in the job.
The move to the main market comes during a difficult time for online retailers that thrived during lockdowns, with shifting consumer-spending habits coinciding with logistics issues that have made moving inventory around the world more difficult since the pandemic and Brexit.
Still, analysts covering Asos are largely positive, with 13 rating the stock a buy, 15 rating it a hold, and none of the 28 tracked by Bloomberg recommending selling. That’s in contrast to short interest data, which has been creeping higher for the past five months and is hovering at around 8% of shares outstanding, according to IHS Markit data.
AJ Bell’s Mould said much will now depend on how the company manages high inflation and its impact on the company’s profit margins. “Ultimately, it is the fundamentals of profits, cash flow and valuation which will determine the long-term valuation and share price trajectory of the stock,” he said.
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