Bank of America Corp. has turned bullish on Europe’s battered online shopping companies — even if it sees little or no growth for the sector this year.
(Bloomberg) — Bank of America Corp. has turned bullish on Europe’s battered online shopping companies — even if it sees little or no growth for the sector this year.
Shares in many of these companies endured a brutal 2022, as Covid-time lockdowns ended and inflation surged. Now, BofA analysts including Geoffroy de Mendez and Ashley Wallace reckon the sector offers upside, having been cautious on it for the past 18 months.
“Risk/reward has reversed: we’re buyers of all stocks,” they wrote in a note on Friday, upgrading their recommendation on Asos Plc, Boohoo Group Plc and Zalando SE to buy, while reiterating their positive rating on THG plc.
Shares in Asos soared as much as 12% after the recommendation change, while Zalando advanced 4.7%. Boohoo briefly rallied 10%, before trimming those gains as it continued to feel the impact of a trading update where it forecast a double-digit decline in revenues.
Boohoo’s update from Thursday encapsulated many of the online retail sector’s woes; alongside Asos it was among the worst-hit last year, as a brutal cost-of-living squeeze crimped Britons’ spending power. Those headwinds remain, with latest UK data showing earlier on Friday that December saw its sharpest decline in volume of goods purchased in shops and online since records began in 1989.
It’s a far cry from 2020, when Covid lockdowns fueled an online shopping boom. Since then though, shares in Asos, THG and Boohoo have lost roughly 90% of their value, while Zalando has fallen 60%.
BofA acknowledged the sector would remain weak in 2023, with its models showing nearly no growth in 2023, as consumers hold back from splurging on discretionary items. However, the analysts reckon the market understands what lies ahead, noting that profit expectations for some of these firms have slumped by as much as 90% in the past year.
“For shares to recover from here, we think these companies just need to convince the market they will survive,” the BofA team said.
The retailers have prioritized making cost savings, while freight rates and raw materials prices have eased, which “should be enough to go through 2023, even for Asos and Boohoo, which have the most stretched balance sheets, in our view,” they added.
Out of the four stocks, BofA views Asos as “one of the best ways to invest,” based on a risk-reward expectation, while Zalando has the least balance sheet risk. To reflect the view, the bank raised its price target on Asos by almost four-fold to 1,650 pence, while nearly tripling that on Zalando at 50 euros.
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