Company Overview: MyDeal.com.au.Limited (ASX: MYD) is an e-commerce group, that specialises in household goods such as furniture and homewares. It operates a marketplace model through the use of proprietary technology, and acts as an intermediary between consumers and sellers. The company has over 800 active sellers and over 5 million product SKU's across 2,000 categories. It has also launched a private label offering and intends to grow this segment through the use of its proprietary marketplace data, driving the gross margin of the entire MyDeal business in the process.
MYD Details
Decent Financial Performance on the Back of Increased Customer Activity: MyDeal.com.au.Limited (ASX: MYD) is an e-commerce company and operates an online marketplace platform. The market capitalisation of the company as on 02 March 2021, stood at ~$278.23 million. The company got listed on the ASX on 22 October 2020, after the successful completion of an initial public offering that raised ~$40 million. It raised $35 million through the issue of 35 million new shares and $5 million for certain existing shareholders through the sale of 5 million shares at the price of $1. As per the company, the proceeds will be used to drive future growth by growing MyDeal’s private label business and investing in the company's technology, including development & launching mobile apps for iOS and Android devices.
The company delivered robust performance during 1HFY21, with an increase in gross sales by ~217% to $126.7 million, from $40 million in H1FY20. The private label launch made a contribution of $4.3 million to gross sales, with an impressive gross margin performance of ~43%. It reported a revenue jump of ~248% to $21.2 million, from $6.1 million in the previous corresponding period. There was also significant improvement in the cash position of the company to $48.1 million during the end of H1FY21, compared to $6.2 million in the previous corresponding period. MYD reported an increase in the number of active customers to 813,764. There was an uptick in the gross sales per active customer to $233.6 in CY20, from $216.4 in CY19.
H1FY21 Financial Performance (Source: Company Reports)
Increase in Active Customers Aiding Sales Growth: The company reported an impressive increase in the number of active customers to 813,764 as on December 2020, which is a growth of ~205% on the prior corresponding period. The increase, along with repeat orders is responsible for the shift in the run rate growth. The growth in revenue has outpaced the gross sales growth, driven by the accounting revenue recognition of private label sales. However, despite the record customer acquisitions, 52.7% of the transactions in Q2FY21 were from returning customers reflecting the consumer acceptance and satisfaction for the service offerings on its platform.
Increase in Number of Active Customers (Source: Company Reports)
Private Label to Provide Cushion to Margins: The company continued to focus on its strategy to grow the private label brand, which generated $4.3 million of gross sales in H1FY21. The improvement in results was aided by the expansion of the company’s supplier base, with sourcing relationships being made in Indonesia, Taiwan and Vietnam. The company expects this segment to provide margin comfort to the overall business and presents decent growth opportunity moving forward.
Top 10 Shareholders: The top 10 shareholders together form around 85.24% 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:
Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group
Key Metrics: The company has improved on its margin performance during FY20, compared to FY19. It reported a net margin of 5.4% in FY20, from a negative 7.7% in FY19. There was also an improvement in the liquidity position of the company, with an increase in the current ratio to 1.21x, from 1.04x in the previous corresponding period. The cash cycle improved to 18 days in FY20 from 51.3 days in FY19. However, the debt to equity ratio increased to 3.22x during the period, from 0.25x in FY19.
Revenue and Margin Profile (Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)
Key Risks: The company has a lean business model and depends on the services of a few key personnel. Any loss of it may impact the performance of the business in the short term. The company’s business model is prone to cyber risks, and any data breach might give third party access to important and confidential company information. The onset of the COVID-19 pandemic has discouraged consumers from moving out of their homes and thus increased demand for online purchases of essentials and household items. But, with the improvement in the COVID cases and easing of restrictions, the company might face a challenge to sustain the demand witnessed during the past few months. MYD’s business is dependent on a select number of sellers, and any deterioration in relationship with the key sellers or inability of the company to on-board new sellers can have a negative impact on the company’s business and performance.
Outlook: MYD has witnessed a decent start to H2FY21 and reported an increase in gross sales by 190% in January 2021, compared to the prior period. It expects to launch its iOS & Android apps in the second half of FY21. The company will also look to enhance its proprietary marketplace platform through continued investments. The marketing and promotional activities are expected to witness an increase during H2FY21 in order to drive accelerated growth in its core platform and private label strategy. Online shopping in the furniture and homewares category remains under-penetrated in the Australian market, and MYD seems to be well-positioned from the rising demand to capture the market share going forward.
Valuation Methodology: Price to Sales Based Market Multiple Valuation (Illustrative)
Data Source: Refinitiv, Thomson Reuters, 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: On 22 December 2020, the company has appointed Mr Lachlan Freeman as the Chief Financial Officer (CFO), effective from 11 January 2021. As per ASX, the stock of MYD is trading below its average 52-weeks’ levels of $1.00-$2.20 The stock of MYD gave a negative return of 13.70% in the past three months and a negative return of 15.74% in the past one month. On a technical analysis front, the stock of MYD has a support level of ~$1.047 and a resistance level of ~$1.117. We have valued the stock using an average Price to Sales market multiple since listing (considering a slight premium due to the robust financial performance in H1FY21, opportunity to add on market share and a decent increase in the number of active customers) to FY21E consensus Sales of $42.55 million and have arrived at an indicative target price of lower double-digit growth (in % terms). Considering the current trading levels, decent performance in the first half of FY21, successful completion of the IPO, increase in number of active customers and an improvement in the cash position, we recommend a ‘Buy’ rating on the stock at the current market price of $1.07, down by 0.926% as on March 02, 2021.
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MYD Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
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