‘If a buyer wants to pounce on Asos, they might prefer to move sooner rather than later’

Asos’ shares put on a stylish 15% uplift immediately following the announcement, moderating to 10.5% at the time of writing, but the online specialist still needs to prove that renewed success will last longer than a passing fashion fad. 

Compared to the heady heights it achieved in the past, Asos – which is at the centre of takeover speculation – at present remains more bargain basement than catwalk star.

Capitalised at £431.9m, it seems unimaginable that just six years ago it had a valuation to equal Marks & Spencer at £4.89bn.

And, as analyst Nick Bubb observed, Asos’ shares are still worth less than the 418p they were at the time of an equity raising last month. The etailer’s capitalisation has plummeted 95% over the last five years.

Wide as the valuation gulf may be, it – along with today’s rise – also shows that Asos’ worth could soar once again if it can get the retailing right. 

The business reported today that it had managed to make a profit in its third quarter. No precise number was given, but adjusted EBIT was “up more than £20m year on year” despite a 14% fall in group sales, and it is on track to make between £40m and £60m in the second half.

“Unusually for a quarterly update, there was a lengthy explanation of strategy, the sort of thing that more normally features in interim or full-year results”

That’s an undoubted achievement and testament to the changes being made by Ramos Calamonte. He has been focusing on measures such as bringing inventory levels down, strengthening the balance sheet and prioritising profitable sales – profit per order in the third quarter was up 30% year on year.

Unusually for a quarterly update, there was a lengthy explanation of strategy, the sort of thing that more normally features in interim or full-year results.

The fact it was headlined ‘Why is this the right plan?’ perhaps suggests the plan and its potential impact have not yet been fully absorbed, meaning this needs to be repeated.

Understanding among investors is key as bid talk swirls. There was reportedly an approach by Alibaba-backed Turkish etailer Trendyol some months back.

Over the last week or so, entrepreneur Mike Ashley’s Frasers Group has built up a stake; another purchase today took its holding to more than 10%.

“Ramos Calamonte’s efforts so far have been highly focused on operational and executional improvement. That’s understandable, but in the longer term more will be needed”

Ashley, along with leading Asos shareholder and Bestseller retail tycoon Anders Holch Povlsen, and US hedge fund Camelot boss William Barker, can wield key influence over the company’s future.

Ramos Calamonte’s efforts so far have been highly focused on operational and executional improvement. That’s perfectly understandable, but in the longer term more will be needed, as he has acknowledged. 

He wrote in today’s update: ”It is too early for us to outline the growth strategy for Asos. We must first deliver on our target of turning our stock into cash and improving our profitability.

“However, the best way to create the conditions to grow is to offer again the best combination of fashion and excitement. This is precisely what we are doing.

“It is important to confirm our belief that, as we restore Asos to offering fashion-loving consumers the best product, with unique styling and an inspirational shopping experience, we can grow our customer base.”

So far, Ramos Calamonte is doing what he said he would do when he unveiled the ‘Driving Change’ strategy. That bodes well for the future. If progress continues, Asos’ valuation can be expected to rise further.

So if a buyer wants to pounce, whether they would continue to pursue Ramos Calamonte’s strategy or one of their own, they might be expected to move sooner rather than later, when the price tag will be higher.

Asos shareholders would then have to decide whether to take a decent offer and pocket the money or reject acquisition interest in the hope that they will gain more if improvements bear further fruit while Asos remains a public company.

Trendyol was reportedly willing to pay £1bn for Asos, but if recovery continues apace perhaps it could be worth far more, even if not quite £4.89bn.