Asos’ market capitalisation of £4bn would rank it alongside the UK’s biggest 100 companies on the London stock market – up from £12m 12 years ago; All that the founders offered investors was an idea of selling a film star look via a website

September 22, 2013 2:39 pm

Asos board could size up blue-chip weight

By Kate Burgess

If you saw an elephant perched on a termite mound, you would ask why. So why are shares in Asos, the online retailer of cut-price designer labels and looky-likey glamour rags, still pretending it is a tiddler whose natural habitat is Aim? In an alternative world, Asos’ market capitalisation of £4bn would rank it alongside the UK’s biggest 100 companies on the London stock market – slightly ahead of rival retailer Sports Direct, which has just been promoted to the FTSE 100. Asos is by far the biggest stock on Aim and more than twice the size of its nearest neighbours, Indus Gas and Gulf Keystone Petroleum. GKP, whose market capitalisation is less than £2bn, says it is too big for the junior market. It heads a queue of Aim companies hoping that a full London Stock Exchange listing will bring investors flocking to their doors. But while GKP is busy buffing up its governance to suit the LSE’s premium listing requirements, Asos says it is content to stay where it is. Apparently it has the big-name institutional investors it wants – including Standard Life, Fidelity, Capital and Baillie Gifford – and needs no others.

Not that the Aim team at the LSE is complaining. Asos shines like a beacon on the junior market. Asos’ governance and record of disclosure would not need much spit and polish for it to slip easily into the main market, unlike some of its Aim peers.

For the LSE’s Aim team, Asos also validates its determined stance on sizeism. Aim won’t filter out companies that fall below a set market capitalisation on the basis that some tiddlers really do grow from termite eggs to elephants.

When Asos’ shares were floated at 20p on the junior market 12 years ago, it raised £2.3m, valuing the company at £12m. All that the founders, including Nick Robertson, former ad man and great-grandson of tailor Austin Reed and now chief executive, offered investors was an idea of selling a film star look via a website – “As Seen On Screen”. In the beginning the company was too small to stock clothes bigger than a size 12.

Since then only the name of the company has shrunk – to its acronym. Asos stocks the full gamut of sizes and has offices all over the world. On Thursday the company said sales rose in the year to August by 40 per cent to £537m. The shares, which are up 158 per cent over the year, rose another 14 per cent last week to £57, shrugging off a bearish note earlier in the week from analysts by Morgan Stanley. The company is trading on more than 35 times earnings forecast for 2017.

It is curious that the exchange’s main market team cannot persuade Asos of the potential benefits and comforts associated with being an LSE blue chip.

Asos maintains it has no reason to abandon its nursery for the bigger market. Mr Robertson says: “Aim serves us really well”.

But perhaps the board should reconsider and look ahead to the moment when sales and profits fail to meet the heady expectations of bulls. Then Asos might be glad of the weightier investor base that supports the shares of FTSE 100 big beasts.