Can takeover talks boost the ASOS share price?

Having ripped higher during the pandemic, ASOS’ share price is now trading near all-time lows. Sales have slumped, debts have mounted and the fast fashion retailer’s stock has been booted off the FTSE 250. Yet major stakeholders are circling the business, attracted by a recovery plan that is showing some promising signs.

• ASOS share price spikes on potential takeover talk, but is once again circling all-time lows.
• Losses come in at over £87m for the six months ending 28 February 2023.
• Billionaire Danish investor backs £75m capital raise, while Mike Ashley’s Frasers Group increases stake to 9%.

ASOS’ [ASC.L] share price spiked at the start of June after news broke that rival Trendyol had made a £1bn bid for the online fast-fashion house.

Trendyol, a Turkish outfit backed by Alibaba [BABA], is understood to have approached ASOS in December about a potential takeover. While the talks seem to have come undone, the fact that ASOS is attracting interest from buyers could be taken as a positive sign after what has been a disastrous couple of years for a company that is no longer in vogue with customers or investors.

ASOS shares have since shed those gains, with the stock now trading at around all-time low levels, closing 5.25% down on Friday 9 June. But could further takeover talk boost the ASOS share price?

ASOS share price comes undone

Year-to-date, ASOS’ share price has declined over 36%, closing Friday 9 June at 325.1p. That’s a sharp decline for a stock that was trading at over 5,700p in February 2021, when the pandemic led to a surge in demand for online retailers like ASOS: in the 12 months to August 2021, the company posted pre-tax profits of £177.1m on revenue of £3.9bn.

Since that heyday, ASOS’ stock has come undone, having declined over 93% in the past two years. The company, which had been valued at over £7bn in February 2021, suffered the indignity of being booted off the FTSE 250 last month. Today ASOS has a market cap of £404m.

ASOS share price torn by slump in sales

Group revenue declined 8% to £1.8bn on a reported basis for the six months to 28 February 2023, according to results published in May. Adjusted losses before tax were £87.4m, while net debt stood at £431.7m. Sales in the UK, ASOS’ biggest market, declined 10%.

To repair its balance sheet the company unveiled plans to tap shareholders for £75m. Among those underwriting the money is Anders Povlsen, CEO of Denmark’s Bestseller and majority owner of German online fashion retailer Zalando [ZAL.DE]. Povlsen has a 22% stake in ASOS.

Mike Ashley’s Frasers Group [FRAS] has also recently raised its stake in ASOS. The group now holds nearly 9% of ASOS stock — nearly enough to block a potential takeover bid, and setting up a potential battle with Povlsen for ownership of ASOS. Should a fight for the company break out, then ASOS’ share price could see some movement.

Recovery plan spikes interest in ASOS

Interest from big-name investors signals that there could be value in ASOS, and that its recovery plan could be working, according to AJ Bell investment director Russ Mould.

“Takeover interest often emerges when a broken company lays out a recovery plan and there are early signs it is working,” said Mould. He added that ASOS’ strategy could give potential suitors the confidence to make a bid now rather than wait for the company “to be repaired and then having to pay a much higher price when the risks are lower”.

That recovery plan has been the lynchpin of CEO José Antonio Ramos Calamonte’s leadership. The plan focuses on getting costs under control, reducing inventory and restoring the online retailer to profitability. Dubbed ‘Driving Change’, the strategy is expected to deliver around £200m in profitability benefits in the second half of the year.

Mould cautioned that the heavy losses in May’s results showed that the recovery plan was in “very early stages” and that the company “remains vulnerable to further takeover interest while the share price remains in the doldrums”.

ASOS will be releasing a trading update for the three months to 31 May on 15 June: a must-read for anyone interested in where ASOS’ share price might go next.