Should You Buy ASOS plc On Takeover Speculation?

BLUF: No

“Should You Buy ASOS plc On Takeover Speculation?”. That was the question posed over at Motley Fool today (http://is.gd/xWIMrp). Uncharacteristically for them, they actually answered the question posed in the headline. Their answer is: “Maybe”. Hmmm, I think I can award only half marks at best.

Readers may recall that I valued ASC (ASOS) at about £20 per share (http://wp.me/p2eZvw-Dt) in late March. The shares were 5528p when I first wrote the article, and they stand at 2686p now. There’s obviously been a rather big decline since I last wrote, and the shares now trade far below the 7000p+ targets that some analysts had given. The look rather silly in hindsight. In June, Barclays reduced its price target from 8000p to 5000p. Seriously, these guys must be pulling price targets out of a hat.

The ASC share price is up 14% today on bid rumours. Motley Fool report that the trade buyers are rumoured to be eBay and Amazon.

From my limited experience, bid rumours have a less than even chance of materialising. Even when negotiations are actually announced, your chances are less than fair.

I’ve never really understood where rumours come from. The companies themselves are going to keep quiet, and their bankers and other professional advisors are going to be at least as keen to keep a lid on their inside information. Their reputation depends on it.

ASC is a share that I should take a look at revaluing some time. The developments that have occurred since I last did a valuation suggests that I need to bring down their margins, and hence the valuation.

I do not expect a bidder to materialise. If that’s the case, then I expect the shares to go lower from here.

We shall see. It’s all just my opinion.

2686p

 

Update 27-Aug-2014: Redrut posted an article on Seeking Alpha today, “ASOS: Growth At A Reasonable(Ish) Price”, arguing for a valuation of £30 – £34.

Update 05-Sep-2014: Corrected link to the Seeking alpha article.

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About mcturra2000

Computer programmer living in Scotland.
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