(Bloomberg) — Asos Plc is set to be elevated to the UK FTSE 250 Index for the first time when changes to the midcap gauge are announced this week, potentially bringing some stability to the online fast-fashion retailer’s often volatile shares.
The stock will be eligible for inclusion in the index’s latest quarterly review, having begun trading on the London stock exchange’s main market in February after spending 20 years on the city’s junior AIM market.
Even after a 34% drop in the shares this year reduced its market capitalization to £1.6 billion ($2 billion), Asos still looks set to qualify for the midcap gauge, according to Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. Inclusion would help reduce volatility in the stock, given that it would necessitate purchases by tracker funds which aim to mirror the performance of the index, Streeter said.
Asos shares have surged more than 7,000% since the retailer first went public in October 2001, with its market value reaching a peak of £6.5 billion in March 2018. Yet it has plunged this year, weighed down as investors have rotated out of growth into cheaper, so-called value stocks.
“It is a weird year for the company,” said Shore Capital analyst Eleonora Dani, noting that consensus pretax profit expectations for the 2022 fiscal year are 35% below the management team’s guidance. That’s “not common to see,” she wrote. Dani sees scope for FTSE 250 inclusion to support Asos’s share price because of funds passively tracking indexes needing to buy the stock.
Still, according to AJ Bell investment director Russ Mould, it’s not clear whether index inclusion will create a wave of share buying, despite the “substantial amounts of passively-run, index-tracking cash.”
“For every buyer there has to be a seller and the shares have been very weak going into their main market move,” Mould said. In the near term, worries over inflation as well as the spending power of Asos’s customers “seem to be outweighing any excitement caused by the shift in listing and any optimism stemming from analysts’ forecasts of a return to rapid profits growth in 2023 and 2024,” he wrote.
The index review will be based on Tuesday’s closing prices, with changes due to be announced after markets close the following day. A full list of expected changes to the FTSE 100 and 250 indexes can be found here.
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