When will the City get Asos?

Continuing to misvalue online fashion retailer Asos seems to be one of the consistencies in the City, with retail analysts perenially underestimating its growth prospects.

Last week’s results – for the year to March 31 – were a typical example. There was much talk ahead of the results about Asos needing to deliver strong numbers to justify its high rating and that the potential therefore was for some weakness in the share price. 

Post the results (that showed a 44% increase in pre-tax profits) the analysts scrambled to upgrade their forecasts while the shares rocketed ahead by almost 100p to 725p. This scenario seems to be repeated almost every quarter when Asos throws numbers to the City.

I can recall a conversation with Asos chief executive Nick Robertson in November 2008 when he seemed convinced the City was getting its valuations a tad wrong. The shares were then 240p and are now over 750p so maybe he had a point.

Asos has certainly over-delivered on its numbers between then and now and until the City gets its head around the fact Asos is a very different beast to traditional retailers then it will continue to do so. Derek Lovelock, chairman of Aurora Fashions, seems to understand and when I put words in his mouth suggesting that the City had got Asos wrong he didn’t disagree.

At the recent BRC Annual Retail Conference he pointed out that fashion shoppers now typically visit Asos to do their research and to see what is happening in fashion-land on its ‘what’s new’ page. They then peel off to go to their favoured brands. Whether this means they then buy on the Asos site or go to the Oasis or Coast websites, Lovelock didn’t mind.

This sort of recognition that Asos is playing a key role in the new world of fashion retailing might be finally filtering through to the City judging by the recent note from Goldman Sachs that put a price target of £12.80 on Asos.

Planting the flag in the ground so far ahead of the underlying share price mirrors the dotcom boom but on past form Goldman Sachs will probably be more right than the rest of the cautious City pack.