Top UK Stocks to Watch: ASOS shares fall on warning of slower growth

ASOS warns of increased volatility, Just Eat Takeaway raises expectations and is set to improve profitability, Avast confirms talks over a possible merger with NortonLifeLock, Experian beats its targets, and Hammerson sees rent collection rates improve as lockdown eases.

UK

Top News: ASOS warns of slower growth as trading becomes ‘more muted’

ASOS said it has continued to deliver strong double-digit growth in retail orders since the start of the second-half, but warned that trading has become ‘more muted’ in recent weeks.

The warning of slower growth sent ASOS shares down over 8% in early trade this morning.

The online fashion retailer said underlying revenue rose 21% at constant currency in the four months to the end of June to £1.28 billion from £1.09 billion the year before. Underlying retail sales in the UK jumped 36%, the EU by 15%, the US by 20% and its international arm reported 11% growth. Its Rest of the World segment was the only geographical unit to report a mild 3% fall in sales.

On a reported basis, revenue was up 31% at constant currency after being boosted by a number of acquisitions ASOS has made over the last year.

ASOS said it ended June with 1.2 million more customers than the year before, with over 26 million on its books in total.

‘Revenue growth in the period was strong, against a backdrop of continued restrictions on consumers, volatile demand and increased global supply chain pressures. This performance reflects continued progress against our strategic priorities and strong growth in our customer base,’ said ASOS.

ASOS said supply chain pressures, led by a shortage in freight capacity and delivery delays, are continuing to impact the business.

‘Trading in the last three weeks of the period was more muted, as continued COVID uncertainty and inclement weather, particularly in the UK, impacted market demand. We anticipate a measure of volatility to continue in the near term, given the rapidly evolving COVID situation worldwide. As a result, we expect our underlying [Q4] growth rate to be broadly in line with the prior year comparable period. We expect overall full year adjusted pretax profit to be in line with our expectations,’ ASOS added.

Notably, ASOS reported 15% underlying growth in the fourth quarter of last year, signalling that there will be a marked slowdown in the coming months.

‘Although mindful of the continued impacts of the pandemic on our customers in the short term, we believe that the structure of the global e-commerce fashion market has changed forever, which will drive an increase in online fashion sales over the long term. We're excited about the size of the prize ahead of us and the opportunity of delivering on our ambition of being the number one destination for fashion-loving 20-somethings,’ said chief executive Nick Beighton.

Where next for the ASOS share price?

ASOS has been trading in a descending channel since hitting an all time high of 5985 in March. The share price trades below its 50 & 200 day ma and the 50 dma crossed below the 200 dma in a bearish signal. The RSI is supportive of further losses whilst it remains out of oversold territory. 

Immediate support can be seen at 4230p the yearly low ahead of 4120p the lower band of the descending channel. A break below this level could see sellers target 3760p the November 2020 low. 

Any meaningful recovery would need to retake the channel mid-point at 4680p and the 50 sma at 4900p.

Just Eat Takeaway ups guidance and expects better profitability

Just Eat Takeaway.com said orders grew by over 50% in the first half after acquiring US outfit Grubhub and that it expects to ‘trend back to profitability’ going forward now that its investment programme has peaked.

The company, itself the creation of a merger between European companies Just Eat and Takeaway.com back in 2020, completed its acquisition of Grubhub in June to expand its presence in the US.

Just Eat Takeaway said orders were up 61% in the first half of 2021, excluding the contribution made by GrubHub. Notably, order growth has slowed in the second quarter from the 79% growth delivered in the first, implying it has lost some steam as economies reopen and people head out once again.

Still, it said it was now expecting full-year orders to grow by over 45% this year compared to its previous 42% target.

Just Eat Takeaway shares in London were trading 0.8% lower in early trade this morning at 6378.0p.

The company said it has continued to gain market share thanks to its recent investments, particularly in the UK where it delivered ‘triple-digit order growth’ in the first half. UK delivery orders jumped 733% in the period.

Notably, including Grubhub, first-half orders were up 51%. The company said gross transaction volume will be in the range of EUR28 billion to EUR30 billion this year, including its new US business.

Just Eat Takeaway said it plans to continue prioritising market share over profits going forward, but said adjusted Ebitda losses peaked in the first half and should gradually improve going forward.

‘Adjusted Ebitda losses, mainly caused by US and Canadian fee caps and our investment programme, have now peaked. We therefore expect the company to trend back to profitability going forward while retaining significant growth during the second half of the year,’ said chief executive Jitse Groen.

It is expecting to deliver an adjusted Ebitda margin of -1% to -1.5% of gross transaction volume in 2021, including GrubHub.

Importantly, Just Eat Takeaway also said it reviewing the company’s listing following the acquisition of Grubhub, which could be significant for shareholders.

‘Following the completion of the Grubhub transaction, this review is ongoing and no decisions on the structure of the Company's listing venues are expected prior to FTSE Russell's semi-annual review of assigned nationality in August 2021. Therefore, it is possible that Just Eat Takeaway.com will cease to be eligible for inclusion in the FTSE UK Index Series from the next review decision, expected to be announced on 1 September 2021,’ said the company.

Avast confirms possible merger with NortonLifeLock

Cybersecurity company Avast has confirmed media reports that it is in ‘advanced discussions’ about a possible merger with NortonLifeLock.

The original report yesterday came from the Wall Street Journal, which suggested Norton could value Avast at around $8 billion. Avast was worth around £5.2 billion, or $7.1 billion, before markets opened this morning.

Avast shares jumped 12.9% in early trade this morning to 568.9p, pushing its market cap to £5.9 billion, or $8.15 billion.

There can be no certainty as to whether any transaction will take place or the terms on which any possible merger may be agreed. A further announcement will be made if and when appropriate,’ Avast said.

NortonLifeLock has until August 11 to announce whether it intends to make a firm offer or walk away.

NortonLifeLock, which is listed on the NASDAQ and boasts a market cap twice the size of Avast, released a statement noting the possible deal.

‘A combination of NortonLifeLock and Avast would bring together two companies with aligned visions, highly complementary business profiles and a joint commitment to innovation that helps protect and empower people to live their digital lives safely. We would draw on the best of both companies to ensure that the combination would benefit our customers, reward our employees and maximise long term value for all shareholders,’ the company said.

Experian ups guidance after beating expectations

Experian said organic revenue growth came in better-than-expected during the first quarter of its financial year, prompting it to raise expectations for the rest of the year.

Experian shares were trading 5.1% higher in early trade this morning at 3130.0p.

The data company said it delivered organic revenue growth of 22% in the three months to the end of June, driven by strong double-digit growth across all its geographies. That was well ahead of the 15% to 20% growth guided by the company back in May.

The performance prompted Experian to up expectations for the full year. It is now expecting total revenue to grow by 11% to 13% this year, of which 9% to 11% will be organic revenue growth. Previously, Experian said it was hoping to deliver 11% to 13% revenue growth and 7% to 9% organic growth.

Experian plans to release interim results covering the six months to the end of September on Wednesday November 17.

Hammerson sees encouraging signs as rent collection improves

Hammerson said rent collection has continued to improve as its tenants start to bounce back after reopening from lockdown and that it expects this improvement to continue as remaining restrictions are lifted.

The company, which runs major shopping and leisure centres in the UK, Ireland and France, said the likes of food and beverage, cinemas and leisure sites have continued to be negatively impacted by coronavirus restrictions, but said it was confident this would improve in the UK once the bulk of restrictions are lifted next week. However, it said it was too early to estimate the affect of additional measures being introduced in France from July 21.

‘Footfall trends in all territories remain encouraging, with seven-day averages currently sitting at around 70-80% of 2019 levels, following an initial spike on reopening.  Many retailers continue to report high sales and conversion rates as visitors shop with purpose.  These trends have been particularly positive in France during the first few days of the summer sales period,’ Hammerson said.

Hammerson has collected 89% of all billable rents due for 2020, and 68% of the rent due for the first half of 2021. The initial collection rate of 47% in the early stages of the third quarter is ahead of what was collected at this stage in the first and second. Combined, year-to-date rent collection stands at 62%.

‘We expect all rent collections to continue to improve as remaining Covid-related restrictions are lifted.  We do not anticipate granting future concessions and all avenues to collect rents due are being pursued,’ said Hammerson.

Hammerson shares were down 1.7% in early trade this morning at 35.52p.

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