The Week Ahead: Fashionable Asos can net gains amid the gloom

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The Independent Online

If the internet is the town square for the global village, Asos, the online fashion retailer which is due to update the market on Wed-nesday, appears to have one of the brightest new stalls in the market. As traditional bricks-and-mortar shopkeepers duck for cover against the sharp economic headwinds sweeping through the high street (Mark and Spencer's awn-ing took a hit two weeks ago), Asos, which has stead-ily increased its product line over the past year, looks well placed to benefit from the virtues of the virtual world: the climate in cyberspace is comparative-ly benign as broadband breaks into new households and consumers, after some wariness, spend more and more online.

The company's interim results, which came out last month, were, as Numis noted at the time, "stellar". First-half pre-tax profit climbed to £2.4m, well ahead of Numis's £1.2m forecast. Sales increased by 83 per cent, while gross margins improved by 470 basis points. Trading in the nine weeks to 2 December was also impressive, up by a spectacular 101 per cent compared with Daniel Stewart's estimate of a rise of around 80 per cent.

Asos is also an attractive takeover candidate. It would appeal to any large e-retailer that wants to improve its offering (the company currently lets its customers choose from 6,500 fashion products, including 135 designer brands) or to another home shopping company looking to increase its appeal to the website's lucrative target market of internet savvy 16-34 year-old men and women.

As always, there are risks. Numis points out that many retailers "are only just dipping their toes into the online world" and may move in with established brands. For now, however, Asos looks very fashionable.

TODAY: The telecoms com-ponents company Filtronic, which recently sold its semiconductor business for £12m, is another safe stock. The sale price was significantly ahead of expectations and prompted Panmure Gordon to upgrade its share price target from 209p to 2,227p. The company may have to pay something in the range of £25-40m to settle its pension liabilities but it retains a healthy business.

Results/Updates – Filtronic.

TOMORROW: The pub group JD Wetherspoon is due to release a second-quarter trading statement tomorrow. As Citi points out, the company has a tough job matching up to last year, when like-for-likes in the same period were up 5.5 per cent. The smoking ban and a slowing economy must have made Christmas trading harder than usual.

After the Tesco disappointment last week, Morrisons will face an expectant market this week. In a note entitled "Momentum, momentum, momentum", analysts at ABN Amro said that the company's Christmas trading statement should confirm industry data which suggests a "quantum jump in sales momentum with year-on-year sales growth of 10-11 per cent". They cite Nielsen, the market research company, which recently said that Morrisons had "outperformed the market for Christmas 2007", adding that in the four weeks to the end of December the company had managed to attract around half a million new shoppers.

Citi is also optimistic. Analysts at the American investment bank are forecasting "very strong Christmas trading" with like-for-like sales growth of 8 per cent. By their own admission, the number represents a sharp rise from the last reported growth rate, of 4.4 per cent for the seven weeks to 4 November.

What, investors may ask, is driving sales? "The likely reason is clearly the company's advertising campaign, which has been much more extensive than anything the company has done in the past," said Citi. The investment bank's analysts added: "No doubt it has been expensive as well as extensive, but we are confident that Morrison fully budgeted for the campaign..." ABN also lists range improvements and a store refurbishment programme, which saw the company update around 50 stores, as key drivers of growth.

Zetar, the AIM-listed confectionary and snack foods group, will announce its interim results for the six months to the end of October tomorrow. The company, which came to London's junior market in 2005, was in the news recently after acquiring the Irish luxury choco-late maker Lir. The deal added a key component to Zetar's business at a time when the boxed chocolate segment is the fastest growing sub-sector within the wider UK market for chocolates.

Results/Updates – JD Weth-erspoon, Morrisons, Zetar.

WEDNESDAY: Results/ Updates – Asos.

THURSDAY: During 2007, the London Stock Exch-ange Group's Borsa Italiana and LSE cash markets hosted 212 electronic equity trades with a combined value of £3.2 trillion. The average daily number of UK equity trades on the company's order book was up 75 per cent on the year before, climbing to 530,239, as was the average daily value traded, which rose 40 per cent to £7.9bn. The com-pany will issue its third-quarter trading update on Thursday.

Results/Updates – London Stock Exchange Group.

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