When a director sells, other investors often decide to follow suit.
So it is not surprise that shares in online fashion group Asos are down 23p at £26.02 after late news on Wednesday that chief executive Nick Robertson had sold some £20m worth of shares, believed to be for tax reasons. This amounts to 10% of his holding, but still leaves him with a stake of 8.39% and as the company’s second largest shareholder.
Last year was an annus horribilis for the company, with a series of profit warnings, a fire at its warehouse and poor international sales after adverse currency movements.
Following news of Robertson’s share sale, Oriel Securities issued a sell note with a £14 price target on the news. Analyst Tom Gadsby said:
The shares have recovered from the October low of 1785p and trade at 62 times current year’s earnings on Wednesday’s close. We believe that company’s risk profile has changed substantially with the opening of overseas DCs. Asos now has all the stock risk of a traditional retailer but without the bulk buying and long lead times that offset markdown risk.
Short term share price reaction is notoriously hard to predict but clearly a major share sale by the founder is hardly a positive signal. Recent second quarter sales (13 January) were a touch light versus consensus and yet the shares outperformed on the day. Despite 15% group sales growth in the second quarter we see margin pressure within the business. We expect flat profits this year (to August 2015) following three profit warnings in 2014 when earnings before tax and interest margin guidance was rebased to 4% (Liberum estimates: 3.8%).
Asos is our top sell in the retail sector. What was previously a low risk ‘pull’ model where customers worldwide ordered stock from the Barnsley warehouse (i.e. low stock risk, not weather dependent, limited markdowns) has become a more traditional model where Asos must send out stock to warehouses across the world and second guess weather and customer demand, implying much higher markdown risk. As a fast fashion retailer, short lead times (typically 3-8 weeks from concept to website) and small order sizes mean that the company does not get the bulk buying benefits that a traditional retailer such as Next or H&M might get (6-12 month lead times). Our 1400p target prices implies a rating broadly in line with high growth peers. 62 times 2015 PE leaves no room for error.
guardian.co.uk © Guardian News and Media Limited 2010