The Sunday Telegraph - Business & Money

There’s no shortage of sellers of Asos shares but there’s still scope for them to triple

The share price has collapsed from £51 in July to about £24 now but we are not giving up on our target of £90

- RICHARD EVANS Read Questor’s rules of investment before you follow our tips: questorrul­es;

‘Why did no one see this coming?” The question the Queen asked in relation to the financial crisis is just as apposite when it comes to the current “shortage of everything”.

No company that supplies physical goods seems to be exempt: even Apple, whose buying power is second to none, has said it will have to cut the number of iphones it delivers because of a shortage of chips.

Closer to home, Asos too has been caught up in the supply chain turmoil. It said on Monday that higher shipping costs and delivery delays could cause profits to fall by more than a third this year and the online fashion brand’s chief executive, Nick Beighton, walked the plank as a result. But should he have seen these logistical challenges coming and acted to forestall them?

“I think Asos is completely a victim of circumstan­ces that no one predicted,” says Fahad Hassan of Albemarle Street Partners, a shareholde­r in the company. “While restarting the economy after a recession is always difficult, this time companies have been whipsawed by how quickly the recovery has gathered pace.”

He says much of the problem relates to companies’ inventory – how much of their goods they have on the shelves ready to sell. “In a recession, such as the one last year, firms reduce inventory to turn goods into cash in order to keep going. Now they are trying to rebuild inventorie­s at the same time as meeting rapidly rising demand. This is extraordin­arily hard if every company on earth is trying to do it simultaneo­usly, hence all the supply bottleneck­s we are now seeing.”

He says these issues are “pervasive, global”. “It’s not just retailers, although Asos’s rivals such as H&M, Primark and Boohoo have had similar problems.”

The irony in Asos’s case is that it had only just recovered from earlier logistical problems that were very much of its own making and after it seemed to have pulled off a coup by acquiring brands such as Topshop and successful­ly integratin­g them into the rest of the business.

“It was delivering on the acquisitio­ns, diversifyi­ng the brands on its online platform and improving efficiency – all this had been achieved but it’s all been washed away by a few weeks of turmoil in logistics,” says Hassan.

How long will the disruption last and what will Asos look like when it’s finally over?

“It will find a way through these problems – the issue is high demand, there is nothing wrong with its fashions or its marketing, so I don’t think there will be permanent damage to the brand,” he says. “I expect this all to die down in about six months. But increased costs are the likely outcome. The company is having to rethink how much inventory to hold and may need to build more warehouses. This will hit margins.”

He says this, in combinatio­n with sales growth that could be as low as 10pc next year, means that profits could struggle to exceed £130m, compared with £177m for the year to August. “This is why the chief executive had to go. But by lowering expectatio­ns this far they are taking the pain early and it won’t take much in the way of good news to exceed them,” he adds.

The shares meanwhile have lost about 50pc since July.

“I think Asos is a long-term growth stock,” Hassan says. “It has created something unique in Britain’s online fashion sector and the more it expands into other regions the more likely it is that a bigger competitor will want to gobble it up. Even if that doesn’t happen, this is a company that should be able to grow at 20pc a year yet whose shares trade at just 16 times predicted earnings for 2023.

“I have not sold any shares – in fact I am tempted to buy more, although we must accept that there may be no good news for the next six months or so while we wait to find out who the new boss will be. Asos still aims to be a £7bn turnover company and I still think its shares can reach £90, although we’ll have to push that target back by a year.” Keep buying.

Questor says: buy

Ticker: ASC

Share price at close: £23.94 Correction: Last week our table stated that Superdry had made a profit of £36.7m in the year to April. In fact it made of loss of that amount. We apologise for the mistake.

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