UBS raised its rating to "buy"

Summary: After yesterday's earnings warning and stock price plunge of more than 31%, the UK's largest fashion power trader Asos's shares rebounded 7.4% to 3,351 03 Pence Today, the biggest single day rise since last year's Fri. One reason for the ASOS share price rally is UBS UBS

Shares in Britain's biggest fashion-maker Asos rose 7.4% to 3,351 03 Pence Today, the biggest single-day rise since last year's Fri, after earnings warnings and shares plunged more than 31% yesterday.

One reason for the ASOS share price rally is that UBS has raised its rating from "neutral" to "buy", although the target price has been lowered from 6,200 pence to 4,000 pence. UBS believes ASOS's current investment in expanding operations will help it achieve 20% annual sales growth over the next five years.

Another 7 brokerages updated their ratings after Asos released their latest results, including Numis Nomura, Deutsche Bank, Goldman Sachs, Citigroup and JPMorgan Chase&co. JPMorgan has maintained a "buy" or "outperform" rating, but the 5 brokerages have lowered the target price of Asos from the previous 6,330 pence to 4,760 pence. Société Générale Bank and Northland Capital have maintained a "hold" rating, with target prices falling to 4,855 pence and 3,000 pence respectively.

In yesterday's three-quarter report, ASOS early-warning intensive promotions, strong growth in lower-margin UK business and sterling strength all will reduce the annual EBIT pre-tax profit margin from 6.5% in the previous fiscal year to about 4.5%, with a full-year pre-tax profit expected to be only 45 million pounds, The equivalent of a 17.7% reduction from 54.7 million pounds in fiscal year 2013, and a 30% reduction in the expected 65 million pounds. In addition, retail revenues in the international market, which accounted for more than 62% of the three quarter, rose by only 17% to 151 million in the year, up much less than 35.2% in the first half, and a string of bad news Asos plunged 44%, the biggest one-day decline since the stock's IPO in 2001, which evaporated 1.7 billion pounds in

Cantor Fitzgerald, retail analyst Freddie George, expressed concern about the ASOS women's business, saying the expansion of the women's business had gone beyond the manageable limits of management. With the women's series discounts and return rates significantly increased, ASOS will have to re-examine the business development strategy and reduce the number of women's product line.

ASOS's global pricing mechanism, based on Sterling, has also become a weakness. Unlike Zara's parent company, the world's largest apparel retailer Inditex and the world's second-largest apparel retailer, H&m Hennes&mauritz adopts a zoning pricing strategy to maintain the competitiveness of regional markets, ASOS Unified pricing in Sterling, Customers in different markets pay for 15 international currencies, including the U.S. dollar, renminbi, Russian rouble and Australian dollar, which in the current environment of Sterling, ASOS in the currency devaluation market in disguise, indirectly reduce competitiveness. In Australia and Russia, for example, the currencies of these two important overseas markets have depreciated by more than 20% per cent compared with the same period last year, leaving Australia, the group's largest international market, half a year ago now in third place, earning only 8% of total retail sales. Asos in the past this period of time in some markets disguised as the maximum price increase of more than 25%, in order to offset the impact of price increases on consumer sentiment, the group sacrificed margin increased the intensity of promotional activities, this easy to make consumers accustomed to Asos of the intensive discount model, forming a vicious circle. But Asos is expected to start commissioning a new zoning pricing system in the next few weeks, which will help it solve the cyclical problem of currency volatility.

In addition, some analysts believe that the online retail market pattern has undergone a fundamental change, more and more brands start their own e-commerce, so that Asos such a multi-brand third-party distributors will bear more and more business and profitability pressure, the prospect of light. But Nick Robertson, chief executive of Asos, thinks this is "nonsense", pointing out that the number of brands he wants to work with is at its highest.

ASOS's share price plunged 20% per cent in mid-March because of Better-than-expected market forecasts and warnings that investment projects and international expansion would affect full-year profitability. From then until June 5, ASOS's share price plunged 51.2% in less than 3 months, proving its 100 times-fold earnings ratio makes its share price extremely volatile. The Asos P/E ratio is still at 82 times times the rate of 45 million pounds before the revised full-year pre-tax profit forecast, even if it fell to a 3,102 135 pence yesterday. However, some analysts believe that the fundamentals of Asos's management team and long-term growth capacity are unaffected and can still be invested.