ASOS PLC – PBT likely to be at the top end of market expectations in H1 FY21.

ASOS PLC (LON: ASC) is a UK listed fashion retailer, operating globally. The product portfolio consists of roughly 800 brands catering to over 20.3 million active global customers.

Investment Rationale – Hold at GBX 4,787.00

• As consumers have increased shopping online, ASOS’ multi-brand model can support the demand pattern.
• The Company expects Covid-19 profit before tax (PBT) benefit of at least £40 million in H1 FY21.
• As per valuation metrics, EV/Sales, and EV/EBITDA multiples of the ASOS are currently lower as compared to the corresponding multiples of the Consumer Cyclicals sector.
• From a technical standpoint, 200-day SMA (3,985.65) is supporting the upside potential.
• During the past four years (FY16 to FY20), gross margin and EBITDA margin have remained above 47.40% and 3.90%, respectively, which is significantly higher than the industry median.

Risk Assessments

• The weak consumer confidence and declining disposable income can impact consumer spending, and thus, the profitability.
• The outlook for consumer behaviour and the depressed economy is still uncertain.
• The Company is also facing an intense competition which can put pressure over margins and expected growth might not be achieved.

Trading Statement for the four months ended 31 December 2020 (as on 13 January 2021)

 (Source: Company Website)

• Revenue growth exceeded the Company’s anticipations, driven by stronger than expected demand, investment in product, and improved pricing.
• The Group sales increased by 23% year-on-year, while the active customer base increased to 24.5 million.
• The Company delivered strong net cash position despite H1 FY21 working capital wind.
• Operationally, the Group has demonstrated better agility by reshaping product offers.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

With anticipated PBT benefits of at least £40 million, H1 FY21, PBT is now expected to be better than the market expectations. Meanwhile, capex guidance increase to £190 million, reflecting investment into US automation. Overall, ASOS is well-positioned to capture the global opportunities despite the short-term uncertainties through continuous development in customer base, ASOS brands and ASOS platform. It` has hired a new CCO, to accelerate the next stage of growth. Therefore, the improvement in capabilities shall provide business resilience and agility. Moreover, warehouse capacity is operating at a normal level which makes the Company well-set for peak trading. The Company expects to deliver continuous improvement in underlying profit in FY21 and beyond. Stock 52 week High and Low were GBX 5,548.00 and GBX 975.20, respectively.

Based on the valuation methodology, business capabilities and industry prospects, we have given a “Hold” recommendation on ASOS PLC at the current market price of GBX 4,787.00 (as on 18 January 2021, before the market close at 8:30 AM GMT), while we look forward to reviewing the upcoming catalysts.

Synairgen PLC – Initiated dosing its first patient for SG018.

Synairgen PLC (LON: SNG) is a FTSE AIM All-Share listed Company, which is involved in drug discovery and development of therapies for respiratory diseases.

Investment Rationale – Hold at GBX 155.42

• SG018 Phase III trial can bring a significant scientific breakthrough for Covid-19 treatment.
• On 15 October 2020, the Company raised around £80.0 million in gross proceeds by issuing 45,714,285 shares to support SNG001 manufacturing and device scale up activities.
• In the past six months, the stock has significantly outperformed the benchmark index as SNG has delivered a 71.95% return while FTSE AIM All-Share has gained 19.23%.
• From a technical standpoint, 50-day SMA (120.31) is supporting the upside potential.
• In H1 FY20, debt/equity ratio was 0.02x. The debt/equity ratio has remained significantly below the industry median for the last three years.
• The Company is investing in supply chain activities to meet the potential drug demand.

Risk Assessments

• The Company is still reporting a loss from operations; moreover, the loss from operations widened in H1 FY20 as compared to H1 FY19.
• The emergence of Coronavirus has halted the COPD trial and diverted their attention towards pressing concerns of the pandemic.
• Failure to obtain a regulatory license can significantly impact the Company's value.

Recent News

13 January 2021: Synairgen has dosed its first patient as part of its global SG018 Phase III trial for the treatment of hospitalised COVID-19 patients.

Interim results for six months ended 30 June 2020 (as on 29 September 2020)

 (Source: Company Website)

• During the H1 FY20, loss from operations widened to £5.08 million (H1 FY19: £2.21 million loss).
• As of 30 June 2020, cash balance stood at £10.9 million (30 June 2019: £3.52 million).
• The Company received positive results from a hospital-based COVID-19 trial in July, and hence, putting endeavours to make SNG001 as a potential treatment for Covid-19 patients.
• The Company is in discussion with regulatory agencies for the approval of SNG001 as a treatment for COVID-19.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company is now fully focussed on expediting the next steps with SNG001 and in discussion with regulatory agencies. The positive interim results of SNG001 in COPD patients underpins bright prospects the Company. Moreover, it has recently raised funds to support the manufacturing of SNG001 and bolster the balance sheet. As it is trading close to a 52-week low, it could be a lucrative opportunity to invest in the long-term. Stock 52-week High and Low were GBX 258.46 and GBX 6.97, respectively.

Based on the recent drug developments, fundraising, and operational performance, we have given a "Hold" recommendation on Synairgen PLC at the current market price of GBX 155.42 (as on 18 January 2021, before the market close at 9:25 AM GMT), while we look forward to reviewing the upcoming catalysts.

*All forecasted figures and Industry/Peer information have been taken from Refinitiv, Thomson Reuters.

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