Top UK Stocks: ASOS shares plunge as CEO resigns

ASOS starts to feel the impact of rising costs, AstraZeneca’s experimental drug can cut the risk of being killed by Covid-19 in half, XP Power continues to see orders flood-in, and LXI REIT says rents will benefit from the inflationary environment.

Top News: ASOS CEO resigns as cost headwinds start to bite

ASOS has announced chief executive Nick Beighton is standing down as the online fashion firm posted strong growth in revenue and profits during its recently-ended financial year but warned cost headwinds could weigh on its performance this year.

ASOS shares were down over 15% in early trade this morning.

Beighton has been with ASOS for 12 years and spent the last six as CEO. He will remain available to the board until the end of the year and a search for his successor is underway. In the meantime, chief financial officer Mat Dunn will take on the additional role of chief operating officer to manage the day-to-day running of the business. Meanwhile, director of group finance Katy Mecklenburgh will become interim CFO.

Beighton’s exit comes just weeks after its chairman Adam Crozier announced he would be leaving the business to join BT Group. ASOS said today that Ian Dyson will replace him and become non-executive chair of the board.

The management shake-up came as ASOS posted a 20% rise in annual revenue during the year to the end of August to £3.91 billion from £3.26 billion the year before. That was thanks to 13% growth in active customers to 26.4 million and strong growth across the board. UK sales were up 36%, US sales were up 21%, the EU was up 15% and sales in the rest of the world edged up 6%.

The rise in sales twinned with a slightly better margin saw adjusted Ebitda rise 23% to £343.7 million. Adjusted pretax profit was up 36% to £193.6 million, which included a £67.3 million ‘Covid-19 benefit’, while reported pretax profit at the bottom-line was up 25% to £177.1 million.

ASOS said it is expecting sales to grow by 10% to 15% in the new financial year, with growth in the first half to be in the ‘mid-single digits’ as it comes up against tougher comparatives, supply chain pressure and longer lead times. It is expecting sales growth to accelerate in the second half as events like music festivals return and the pressure on the supply chain eases.

Adjusted pretax profit this year is set to be between £110 million to £140 million. That will be down as the Covid-19 benefit falls away and return rates normalise after dropping during the pandemic. It also flagged ‘notable cost headwinds’ as higher freight rates, Brexit duties, labour cost inflation and an increase in delivery costs all bite.

‘Looking ahead, while our performance in the next 12 months is likely to be constrained by demand volatility and global supply chain and cost pressures, we are confident in our ability to capture the sizeable opportunities ahead,’ said Dunn.

Over the longer-term, ASOS unveiled medium-term plans to generate £7.0 billion worth of revenue at an Ebit margin of at least 4% (compared to 5.3% in the recently-ended year). This will be achieved by accelerating investment in its international arm, including a doubling in size of its business in both the US and the EU, and boosting sales of its own-brand goods by £1 billion per year.

 

Where next for the ASOS share price?

After reaching 5985p in late March the ASOS share price has been trending lower. The price trades below its 50 & 200 sma. The 50 sma crossed below the 200 sma in early July. The selloff has gained momentum today. 

The RSI has fallen deep into oversold territory suggesting that there could be some consolidation or a move higher. 

The price has fallen through support at 2550p the April ’20 high, opening the door to 2300p September’19 low and 2000p round number. 

On the flip side, 2550p now offers resistance, ahead of 3100p the falling trendline resistance. It would take a move over 3385p the late September high to negate the near-term downtrend and expose the 50 sma at 3500p. Beyond the 50 sma is horizontal support at 4160p the late August high. 

Where next for the ASOS share price?

 

AstraZeneca drug cuts risk of dying from Covid-19

AstraZeneca said the latest results from the trial of its antibody combination, AZD7442, show it can help reduce the risk of contracting severe coronavirus or being killed by the virus.

The pharmaceutical giant said it ‘achieved a statistically significant reduction in severe COVID-19 or death compared to placebo in non-hospitalised patients with mild-to-moderate symptomatic COVID-19.’

AstraZeneca said the trial met its primary endpoint after one 600mg dose helped reduce the risk of developing severe Covid-19 or death by 50% compared to a placebo given to outpatients who had shown symptoms for a maximum of seven days.

Of all the participants – 90% of which were deemed to be people deemed at high risk of contracting severe Covid-19 – 18 of them contracted the virus compared to 37 in the placebo group.

The company said participants that received treatment within five days of the symptoms saw a 67% reduction in the risk of contracting severe Covid-19 or being killed by the virus.

‘AZD7442 is the first LAAB with Phase III data to demonstrate benefit in both prophylaxis and treatment of COVID-19 and is easily administered by IM injection,’ said AstraZeneca.

AstraZeneca will share the data with healthcare regulators in the hope of gaining approval, having already filed for it to be used as a preventative treatment in the US in early October.

AstraZeneca shares were trading broadly flat in early trade today at 8890.5p.

 

XP Power continues to see orders build

XP Power said revenue declined in the latest quarter as it came up against tough comparatives, but orders continued to flow in as demand for its power solutions continues to grow.

The firm, which provides power solutions for all types of equipment, said revenue was down 11% in the third quarter at £61.6 million from £69.0 million the year before, dropping 5% at constant currency. The drop came as it faced tougher comparatives from last year when it saw a boom in demand from the healthcare industry, which did not repeat this time around.

Revenue in the first nine months of 2021 is still up 4% at £181.4 million from £174.1 million the year before – and up 12% at constant currency – largely thanks to a surge in demand for power solutions from the semiconductor manufacturing equipment market.

XP Power entered the third quarter with a record order book and that progressed further, with the firm securing £97.2 million worth of orders in the period, up 73% from the year before. Its order book in the first nine months of the year has now risen 26% to £254.7 million.

‘Order growth was driven by continued strength in the semiconductor manufacturing equipment sector, the ongoing recovery in industrial technology, and a pick-up in healthcare, where third quarter orders were 70% above 2019 levels,’ said XP Power.

‘The extension of lead times to customers has brought orders forward as customers seek to secure supply.  Year to date order intake was up 37% at constant currency. The group enters the final quarter of the year with a very strong order backlog position partially as a result of lead times that have continued to extend,’ the company added.

The company’s book-to-bill ratio, which measures the time between orders being received and fulfilled, moved to 1.58 in the third quarter from 0.82 the year before. That marks a significant improvement as a ratio of over one suggests demand is outstripping supply.

XP Power said it will pay a 21.0 pence dividend for the third quarter, up from 20.0p the year before.

The company said it remains confident going forward but cautious about the fragility of the supply chain, including ‘shortages of key components, ongoing COVID-19 challenges and freight capacity constraints, with associated increased costs.’

XP Power shares were up 0.3% this morning at 5055.0p.

 

LXI REIT expects inflationary environment to boost rents

LXI REIT said an updated valuation of its property portfolio has led to an increase in its net asset value and that it expects to benefit from the higher inflationary environment as virtually all of its rental income is linked to inflation.

The company, which owns and leases out a variety of properties spanning from hotels and pubs to industrial sites and garden centres, said its property portfolio was valued at £1.22 billion at the end of September. That is up 4.9% on a like-for-like basis from six months ago, and 29.7% higher when acquisitions and disposals are included.

Higher valuations were assigned to all types of properties. Industrial sites and pubs saw the largest uplift of around 7%, followed by foodstores at 5%, garden centres at 4% and car parks at 3%.

That increase led to LXI’s net asset value rising 6.2% over the last six months to 133.5 pence. Including dividends that have been paid, LXI said it expects to deliver a NAV total return of 8.6% in the six-month period, which is ahead of the company’s 8% target.

LXI REIT shares were up 0.1% this morning at 141.1p.

LXI said it has collected all the rent due for the final quarter of its financial year. Notably, 96% of its rental income in linked to inflation or have fixed uplifts pencilled in.

‘The company has established a substantial and robust long income portfolio diversified across resilient sectors and tenants, with virtually all rental income linked to inflation or containing fixed uplifts.  As such, the company expects to benefit from the current higher inflationary environment and to continue to deliver attractive income and capital returns for its shareholders,’ said LXI.

LXI confirmed it is aiming to pay an annual dividend of 6.0 pence for the 12 months to the end of March 2022, which will be paid in equal quarterly instalments of 1.5p per share.

 

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