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The Expert View: Asos, Bellway and DMGT

Our daily roundup of the best analyst commentary on shares, also including AO World and Aveva.

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'Sell' Asos as profit warning prompts plunge in shares

Once the darling of the online retail world, Asos (ASOS) took a hammering yesterday after warning its full-year profits would miss forecasts by 30%.

Liberum analyst Sanjay Vidyarthi maintained a ‘sell’ rating and target price of £25.00 on the shares, which plunged by more than 30% to £31.23 on the warning. Since the start of the year, Asos has lost around half its value.

‘As a result of the continued strength of sterling and increased levels of promotions activity, Asos is guiding to around a 30% reduction to full-year 2014 profit before tax consensus expectations,’ he said. ‘Our estimates had been positioned below consensus as we sensed H2 pressure.’

Vidyarthi said the ‘sell’ rating was not just about valuation but ‘the likelihood of the cost of growth’.

‘We think Asos has had a strong first mover advantage but we remain to be convinced that it has a sustainable long-term competitive advantage,’ he said. ‘We expect competition from online and multi-channel retailers to continue to put pressure on Asos.’

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Bellway expected to deliver highest sector returns

Housebuilders Bellway (BWY) has been upgraded after increasing its 2015 estimates by 10% in its latest trading statement.

Numis analyst Chris Millington upped his recommendation from ‘add’ to ‘buy’ and retained a target price of £18.10 after the 10% forecast upgrade led him to strongly increase his ‘return on average tangible common shareholders’ equity’. Shares were trading up 2.3% at £14.37 yesterday.

‘Despite this positive momentum the shares are forecast to be trading very close to net asset value for December 2015 and yielding nearly 5%,’ he said. ‘While market conditions remain very strong we feel Bellway also offers defensive characteristics; a broadly nil geared balance sheet, low land creditors, no off balance sheet finance and a land bank which will have been bought using cautious assumptions.’

Millington said these traits meant Bellway had ‘one of the highest total shareholders returns in the sector over the long-term’ and that he felt ‘the company remains well placed to continue its top-quartile performance’.

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Zoopla valuation to boost DMGT balance sheet

The near £1 billion valuation of property search website Zoopla in its initial public offering (IPO), bodes well for its parent Daily Mail & General Trust (DMGT).

Peel Hunt analyst Malcolm Morgan retained a ‘buy’ rating and target price of £10.40 on DMGT shares, stating the valuation of Zoopla was in line with his own expectations. Shares traded flat at 879p yesterday.

‘The 200p-250p price range for the Zoopla IPO tallies with our own valuation expectations. This is likely to reassure the market,’ said Morgan. ‘The proceeds from the Zoopla part-disposal will further strengthen the DMGT balance sheet, and the company could feasibly end full year 2014 with net debt of £300 million, ie at all-time lows.

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AO World impresses with its maiden results

Maiden results from online white goods retailer AO World (AO) has seen ‘punchy’ revenue growth of 40% for 2014.

Jefferies analyst David Reynolds retained a ‘buy’ recommendation and target price of 410p on the shares after what he described as a ‘solid performance’ in a ‘manically hectic 2014’. Shares fell 5% to 248.3p yesterday.

He noted 2014 revenue of £384.9 million, up 40% year-on-year and sales up 45% and that AO was trading in line to meet 2015 expectations.

‘Full year 2014 was pretty busy, the rebrand and the initial public offering to name but two material events, +40% revenue growth…we think is impressive,’ he said.

Reynolds added that AO had managed to launch TV sales ‘hitch free’ and an increased reach in Germany ‘suggests a real advance’.

‘AO look to be stepping up to the plate, and appears in good shape for full year 2015,’ he said.

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Aveva shares expected to ‘nudge’ up over summer

After a positive meeting with engineering software provider Aveva (AVV) and good news on US budget spending, Panmure Gordon expects a ‘nudge’ up in the share price.

Analyst George O’Connor retained a ‘buy’ rating and target price of £22.49 on the shares, which fell 1.7% to £21.97 yesterday. He noted success with its latest technology E3D, although said it was ‘small beer’ and argued US spending on the power industry was going to ‘do the shares good’.

‘Indeed we expect the share price to nudge over our target price through the summer,’ he said. ‘As usual Aveva shares are not the cheapest, trading on a price earnings ratio of 24.4 times. We are relaxed with our slightly below the mid-point estimates. We have elected to retain our “buy”.’

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