Company Overview: MyDeal.com.au Limited (ASX: MYD) is an Australian e-commerce company founded in 2011. It has developed its own proprietary technology platform where it provides an online marketplace and connects buyers and sellers for an enhanced shopping experience. The company is focused on household goods and generated $103 million in Gross Transaction Value (GTV) in FY20. It has also introduced its own private label, which is expected to provide revenue comfort to the company, complementing the online marketplace.
MYD Details
Decent Increase in Sales Aided by Repeat Purchases & Increase in Customer Base: MyDeal.com.au Limited (ASX: MYD) provides an online retail marketplace focused on household goods such as furniture and homewares. The market capitalisation of the company as on 25 May 2021, stood at ~$151.41 million. The company has more than 1,800 sellers on its platform, with over 6 million product SKUs listed across over 2,000 categories as of 31 March 2021.
During Q3FY21, the company reported robust performance and delivered gross sales of $44.7 million, an increase of 104.5% on the previous corresponding period. Revenue grew by 175.8% to $8.3 million during the period. There was also an increase in the active customers by ~157% to 883,397 as of 31 March 2021. Moreover, 56.1% of all transactions in Q3 were from returning customers, which proved the loyalty of the customers towards the company. MYD has witnessed increased traction in the sale of its private label and posted Q3 gross sales of $2.2 million. It ended the period with a decent cash position of ~$45 million as of 31 March 2021.
Growth in Active Customers (Source: Company Reports)
Decent Y-o-Y Sales Performance: The company witnessed decent growth in Q3FY21 with gross sales at $44.7 million, reflecting growth of 104.5% on the prior period. Further, sales in the prior period were boosted by the demand for personal protective equipment as the COVID-19 pandemic got a hold of the country. Excluding face mask and sanitiser sales, the gross sales grew by 160.1% in Q3FY21 when compared to the pcp. However, there has been a moderation in sales when compared against Q2FY21 following the peak Christmas trading period.
Trend in Gross Sales (Source: Company Reports)
Launch of Mobile Apps for iOS and Android Systems: MYD has recently announced the launch of native iOS and Android mobile applications with the goal of increasing customer retention. It plans to provide its customers seamless and enhanced mobile access to its diverse range of 6 million home and lifestyle products. The apps will provide additional features and benefits, which includes app-specific discount coupons and push notifications for offers. The app has further improvised to include the feature to ‘shop-by-room’, with the ‘shop the look’ visual search function to be launched in stage two. The company expects to reduce on it marketing spends over time with the application of mobile apps, which are designed for scalability, reliability and fast seamless performance.
Addition to S&P ASX 200: On 12 March 2021, S&P Dow Jones Indices announced about the March 2021 Quarterly Rebalance of the S&P/ASX Indices wherein, it added MyDeal.com.au Limited to All Ordinaries Index, effective prior to open on 22 March 2021.
Change in Director’s Interest: The company has undergone a change in director’s interest on 4 March 2021, with director Paul Dennis Greenberg acquiring 100,000 shares at a consideration of $1.08 -$1.11 per share.
Top 10 Shareholders: The top 10 shareholders together form around 85.28% of the total shareholding, while the top 4 constitute the maximum holding. Senvirtne (Sean Amila) and Aavasan Pty. Ltd. are holding a maximum stake in the company at 47.33% and 19.87%, respectively, as also highlighted in the chart below:
Top 10 Shareholders (Source: Analysis by Kalkine Group)
Key Metrics: The company posted improved performance in FY20, and reported an EBITDA margin of 4.3%, compared to a negative 6.1% in FY19. Net margin also improved to 5.4% in FY20, from a level of negative 7.7% in the prior corresponding year. ROE of the company stood at 134.1% during the same period under consideration.
Growth Profile and Profitability Metrics (Source: Analysis by Kalkine Group)
Key Risks: The company is faced with the risk of a data breach or cybersecurity threat which might result in a third party gaining access to its confidential information pertaining to customers and internal systems. This may lead to a breach of customer agreements and damage the Group's brand and reputation. The sector witnessed increased traction in sales and demand with the spread of the COVID-19 pandemic due to a shift in buying preference of consumers towards e-commerce platforms. However, sustaining the same levels of revenue and volumes will be a challenge for the company going forward, with the expected reduction in COVID-19 cases and easing of restrictions by the Government. MYD is also prone to concentration risk, with the top three sellers accounting for ~23% of sales by GTV on the platform and the top 10 accounts for ~41.7%, as on the date of the release of the company's prospectus. Therefore, any adverse effect in the relationship between the stakeholders might impact the profitability and volumes of the company in short to medium term.
Outlook: The company has delivered a decent performance in Q32021 across all key metrics and has opined that the growth has continued in the months of April and May. It believes that it is well-positioned to increase its market share with the local online home and lifestyle market estimated to be worth over $6 billion, as per a report from Euromonitor in July 2020. MYD is optimistic on its prospects and expects to capture the demand by offering leading brands, superior products and quality marketplace sellers across diverse categories on its platform. It further expects a favourable Q4FY21 and an increased traction in shopping with the launch of its iOS and Android mobile applications.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: As per a recent announcement, the company has appointed Ryan Gracie as its Chief Marketing Officer, and he will be responsible for driving the customer value proposition and brand growth. As per ASX, the stock of MYD is trading below its average 52-weeks’ levels of $0.520-$2.200. The stock of MYD gave a positive return of ~15.23% in the past one week and a negative return of ~23.89% in the past one month. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium to its peer average EV/Sales (NTM trading multiple), considering the impressive growth in sales, strong cash position, increase in active customers and the launch of mobile applications. For the purpose, we have taken peers such as Redbubble Ltd (ASX: RBL), Temple & Webster Group Ltd (ASX: TPW), Adore Beauty Group Ltd (ASX: ABY), to name a few, which comes under e-commerce retail space. Considering the expected upside in valuation and current trading levels, robust performance in Q3FY21, growth in active customers, increase in Director’s stake and a comfortable balance sheet position, we recommend a ‘Buy’ rating on the stock at the current market price of $0.605, up by 3.418% as on May 25, 2021.
MYD Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.
Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.
Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.
There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.
You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.
The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.
Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.
Please also read our Terms & Conditions and Financial Services Guide for further information.
On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.