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ASOS (ASC)
Comment on today's Trading Statement for Christmas period (Q3)
Edward Kalfayan
21 January 2005
Still a very high growth story
We introduced ASOS to our readers on 16 Jan 2004 when the share price was 7.5p. It is now 76p. During the year we have met the management twice, visited the warehouse, and spoken to them again today. This is still one of the greatest growth stories on the UK market, certainly compared with high street retailing, and shows how hard the wind is blowing towards online shopping. But there is much more to this story than just surfing a favourable wave. The company's model seems to be much more effective than retailers who have simply moved some of their effort from the shop floor to on-line, using simple transposition and translation of methods, and only adjusting where forced to by circumstance. This year ASOS has moved in ranking from fourth largest on-line retailer to second, and are closing up on the leader NEXT.
It must be difficult to take retail managers and point them at the on-line environment hoping that they will transplant. The comparison with horticulture and thirty year old trees is instructive. In evolutionary terms ASOS benefits from having sown the original seed in a different medium to the retail shops; so that it is naturalised and stronger from the roots up. It draws sustenance from a different culture. It has early mover advantage.
The model seems to be indefinitely scaleable. Not only can it go on growing for years as people switch to broadband to exploit the convenience, and develop confidence in this method of shopping, but overhead costs are relatively fixed. It is mainly the cost of buyers' salaries and the increase in sales support which moves with volume - then from time to time add the cost of moving to a much larger warehouse, as will happen this Summer. These costs lumped together as Administration costs in the accounts have fallen from 57% two years ago to 46% in H1, and are almost certainly a few points lower currently in H2
At 76p- by mid afternoon, after a sharp initial rise to 81p, quickly retraced - the company is valued at £53m - pretty pricey compared with the consensus forecast of £1.53m; but given the exceptional story, a repeat performance next year, which is well on the cards, would leave the shares looking cheap at today's price. Since the story is driven not only by the talents of Nick Robertson and his team, but also by the historical swerve from shop sales to internet sales, this growth story could continue until the company is ten times the size, and then do it again. The numbers registered are not yet half a million. So less than 10% of the target age group has been reached. With the company's model repeatedly scaleable, we can confirm that the management is amazingly sanguine on the prospect of growth however large. For all these reasons we believe that this will become a very large company.
PS. Overseas sales
Furthermore, 10% of the sales come from overseas without the company having made any effort to gain the business. It is far too busy mobilising continuously to keep up with rising sales in its home market. One day, when it has got ahead of its UK growth curve, it can repeat the performance in other countries.
Rate of sales growth
At the interims on 29 November, Sales for H1 to end Sept at £4.695m were up 81% year on year, so today's figures for the Christmas period though still magnificent - up 71% on last year - are suggesting some deceleration, and £7.4m for H2 therefore total sales £12.1m for the FY ( £7.54 for FY 2004). New clients have been registering at the increased rate of 24,000 per month (19k/pm in the previous quarter, and the same a year ago), which suggests that spending per head is slightly down.
Future profit
The cost of sales has been very steady in recent years at 49 - 51% so the final profit out-turn depends on how much the company has increased Administration costs in its relentless sales drive. These have been increasing each time as new buyers: five added, this year making seven, are added to broaden and increase the offering, but at a lower rate than sales growth. During the last year the original range of women's and men's fashions have been expanded to supply footware, beauty products. jewellery, and accessories. Assuming a rise in Admin at the same rate as during last year, and therefore Admin for H2 at £2.4m, plus £114k for goodwill amortisation - the same as last year, less some £20m earned in interest, PBT for H2 would emerge around £1.2m, and for the full year roughly £1.35m. Since the consensus forecast is 15% higher than ours, we might deduce that Admin charges will not have risen by as much as in previous periods. That is quite possible. On the other hand the 71% sales growth published today is 10 points lower than at end November.
for the full Trading Statement see
http://www.uk-wire.com/cgi-bin/articles/200501210700106347H.html
ASOS
Comment on today's Trading Statement for Christmas period (Q3)
Edward Kalfayan
21 January 2005
Still a very high growth story
We introduced ASOS to our readers on 16 Jan 2004 when the share price was 7.5p. It is now 76p. During the year we have met the management twice, visited the warehouse, and spoken to them again today. This is still one of the greatest growth stories on the UK market, certainly compared with high street retailing, and shows how hard the wind is blowing towards online shopping. But there is much more to this story than just surfing a favourable wave. The company's model seems to be much more effective than retailers who have simply moved some of their effort from the shop floor to on-line, using simple transposition and translation of methods, and only adjusting where forced to by circumstance. This year ASOS has moved in ranking from fourth largest on-line retailer to second, and are closing up on the leader NEXT.
It must be difficult to take retail managers and point them at the on-line environment hoping that they will transplant. The comparison with horticulture and thirty year old trees is instructive. In evolutionary terms ASOS benefits from having sown the original seed in a different medium to the retail shops; so that it is naturalised and stronger from the roots up. It draws sustenance from a different culture. It has early mover advantage.
The model seems to be indefinitely scaleable. Not only can it go on growing for years as people switch to broadband to exploit the convenience, and develop confidence in this method of shopping, but overhead costs are relatively fixed. It is mainly the cost of buyers' salaries and the increase in sales support which moves with volume - then from time to time add the cost of moving to a much larger warehouse, as will happen this Summer. These costs lumped together as Administration costs in the accounts have fallen from 57% two years ago to 46% in H1, and are almost certainly a few points lower currently in H2
At 76p- by mid afternoon, after a sharp initial rise to 81p, quickly retraced - the company is valued at £53m - pretty pricey compared with the consensus forecast of £1.53m; but given the exceptional story, a repeat performance next year, which is well on the cards, would leave the shares looking cheap at today's price. Since the story is driven not only by the talents of Nick Robertson and his team, but also by the historical swerve from shop sales to internet sales, this growth story could continue until the company is ten times the size, and then do it again. The numbers registered are not yet half a million. So less than 10% of the target age group has been reached. With the company's model repeatedly scaleable, we can confirm that the management is amazingly sanguine on the prospect of growth however large. For all these reasons we believe that this will become a very large company.
PS. Overseas sales
Furthermore, 10% of the sales come from overseas without the company having made any effort to gain the business. It is far too busy mobilising continuously to keep up with rising sales in its home market. One day, when it has got ahead of its UK growth curve, it can repeat the performance in other countries.
Rate of sales growth
At the interims on 29 November, Sales for H1 to end Sept at £4.695m were up 81% year on year, so today's figures for the Christmas period though still magnificent - up 71% on last year - are suggesting some deceleration, and £7.4m for H2 therefore total sales £12.1m for the FY ( £7.54 for FY 2004). New clients have been registering at the increased rate of 24,000 per month (19k/pm in the previous quarter, and the same a year ago), which suggests that spending per head is slightly down.
Future profit
The cost of sales has been very steady in recent years at 49 - 51% so the final profit out-turn depends on how much the company has increased Administration costs in its relentless sales drive. These have been increasing each time as new buyers: five added, this year making seven, are added to broaden and increase the offering, but at a lower rate than sales growth. During the last year the original range of women's and men's fashions have been expanded to supply footware, beauty products. jewellery, and accessories. Assuming a rise in Admin at the same rate as during last year, and therefore Admin for H2 at £2.4m, plus £114k for goodwill amortisation - the same as last year, less some £20m earned in interest, PBT for H2 would emerge around £1.2m, and for the full year roughly £1.35m. Since the consensus forecast is 15% higher than ours, we might deduce that Admin charges will not have risen by as much as in previous periods. That is quite possible. On the other hand the 71% sales growth published today is 10 points lower than at end November.
for the full Trading Statement see
http://www.uk-wire.com/cgi-bin/articles/200501210700106347H.html
ASOS