Company Overview: Noni B Limited is engaged in retailing of women's apparel and accessories. The Company operates within the women's fashion retail sector in Australia through a national network of boutique stores under the brands of Noni B and Liz Jordan. It also operates Queens park and Events brands. The Company creates its products, which are manufactured under contract by third-party suppliers. It offers various types of dresses, such as day dresses, evening dresses, maxi dresses and print dresses; tops, such as T-shirts, shirts, kaftans, tanks and tunics; knitwear, such as cardigans, sweaters and jumpers, and capes and ponchos; outerwear, such as jackets, coats, shrugs and vests; bottoms, such as pants, skirts, denim and shorts; intimates, such as bras, briefs, camisoles and slips; occasions, such as mother of the bride, desk-to-dinner, travel range and the slimming range, and accessories, such as scarves, eyewear, hand bags and fascinators. It operates through a retail network over 220 stores.


NBL Details

Strong 1H FY 2019 Numbers, Focus on Operating Costs Remains on Track: Noni B Limited (ASX: NBL) happens to be one of Australia’s leading fashion retailers and the principal activities revolve around the retailing of women’s apparel and accessories. As on April 9, 2019, the market capitalisation of Noni B Limited stood at ~$279.11 million. The company posted underlying EBITDA amounting to $29.1 million for the half year ended December 30, 2018 as compared to $22.1 million for the same corresponding period last year which implies a rise of 31.4%. The company’s sales skyrocketed 140.4% YoY and stood at $464.4 million in 1H FY 2019 after the acquisition of 5 brands from Specialty Fashion Group on July 2, 2018. Also, the company’s cash flow was robust with cash-on-hand of $64.7 million at December 30, 2018 as compared to $34.1 million in December 2017 which implies a rise of 89.9%. Thanks to the company’s strong results and decent net cash position that it declared for the half a fully-franked interim dividend amounting to 9.0 cents per share.

The company’s management was positive on the November & December trading result which was a direct outcome of core strategies which were implemented post acquisition in order to rebuild acquired five brands’ product range, variety, and stock levels together with an enhanced emphasis towards specific customer base of each brand. Moreover, the company focuses on its operating cost which is on track to deliver additional cost synergies amounting to $20 million by June 30, 2019, over the achieved $30 million (on an annual basis).

Moving forward, the company is expected to be aided by the acquisition of five brands, deployments in the online presence as well as strong cash-generating and revenue generating capabilities. At the end of FY 2018, the company’s RoE (or Return on Equity) stood at 20.1% which implies a rise of 1140 bps on a YoY basis, signifying robust returns to its shareholders. At the end of 1H FY 2019, its RoE stood at 8.4%.


Overview of 1H FY 2019 Results (Source: Company Reports)

Improvement in Key Margins: The key margins of Noni B Limited have witnessed significant improvement in the span of five years to FY 2018 (i.e. from FY 2014- FY 2018) which reflects that the company’s business strategies have been paying off well. In FY 2014, its net margin was -6.8% which turned around to 4.6% in FY 2018, displaying its strategic capabilities to convert its top line into the bottom line at a decent pace. Also, in FY 2014, its operating margin stood at -7.9% while in FY 2018 it was 7.1%, signifying cost-effective approach over the period.

Also, the company’s cash-generating capabilities have witnessed improvements since FY 2016 which might help the company to strengthen its cash position and it will support to capture its long-term growth prospects. This improvement is reflected in its cash receipts between FY 2016- FY 2018.

Deployments towards Online Capabilities To Drive Future Growth: Noni B Limited seems to be very optimistic when it comes to online sales as they have been making deployments in the same. In 1HFY19, the company’s online growth accelerated as compared to the prior corresponding period and is growing ahead of the market. There have been deployments towards building and strengthening the online team and, we expect, that these investments might pay-off moving forward. The improvement in mobile customer experience and deployments towards new digital marketing channels might act as tailwinds to the Online Sales growth of NBL.
 

Online Growth Trend (Source: Company Reports)

Acquisition of Five Brands- A Brief Look: Noni B Limited made the acquisition of Millers, Autograph, Crossroads, Rivers and Katies brands from the Specialty Fashion Group via a purchase of assets on July 2, 2018. The acquisition provides synergies via combining the supply chain and logistics, integration of the online infrastructure and systems, optimisation of store portfolio and leveraging NBL’s expanded purchasing size. The brands which have been acquired by NBL operate in the retail of women’s apparel and accessories and, therefore, it enhances the product offering to NBL’s core women’s apparel market.


Acquired Brand Portfolio (Source: Company Reports)

The company’s top management had stated that the acquisition of loss-making Specialty Fashion Group brands for the consideration of $31 million more than doubled NBL’s size, and thus, creating one of Australia’s leading retail fashion group which is having more than 1,400 stores. At that time, the company had expected to restore the acquired brands to EBITDA break-even in FY2019, but now there are expectations that they could achieve positive EBITDA for the current year.

A Quick Look at FY 2018 Results: Noni B Limited’s total revenue witnessed the rise of 17.6% and stood at $372.4 million in FY 2018 which reflects full twelve months’ contribution from Pretty Girl business as well as continued strong growth of Noni B brand. The company’s statutory after-tax profit encountered the rise of 431.6% and stood at $17.3 million. Also, the strength of the company’s online presence was visible during the same period. The online business witnessed significant and ongoing improvement and represented 5.8% of NBL sales for FY 2018 which demonstrates the prudent investment and focus of the company towards this area. At the end of FY 2018, the company had total cash-on-hand of $58.7 million as well as total bank debt amounting to $20.8 million, which includes $38.6 million of net proceeds from equity raising in the month of May 2018 in order to finance the acquisition of Specialty Assets, integration costs and provide additional working capital. However, excluding the net proceeds of equity raising, cash balance would have been $20.1 million which demonstrates robust cash generation of the company in 2H FY 2018.


Full Year Review (Source: Company Reports)

What To Expect From NBL Moving Forward: The management of Noni B Limited is of the view that the market is expected to be challenging even though like-for-like growth in the sales has been witnessed in the second half. The company anticipates that the full year benefit of synergies, coupled with improvements in gross margin, might result in FY 2020 EBITDA exceeding $75 million consistent with the market consensus. The company’s key focus and strategies mainly revolve around the deployment in the online presence and restocking the acquired brands to the optimum levels. The company would be making investments in improving the customers’ instore experience and would also be rolling out new stores as per the demand.

The company has begun to create a more customer-focused experience with respect to its five new brands’ stores, and this would be having an increasing impact as the company rolls out new store designs. Also, the company has been making deployments towards the online presence and, we expect, that these investments would support its online growth which might also improve the performance of the overall company. The company has increased product choice for the customer on each of its brand websites.

Stock Recommendation: Noni B Limited is having an annual dividend yield of 4.51% which can be considered at respectable levels. The company’s decent distributions to the shareholders might attract the attention of market players. Also, as mentioned, the company managed to improve its key margins over the span of five years to FY 2018 (i.e. from FY 2014- FY 2018) which might be another eye-catcher.

Also, from the valuation perspective, the company is having P/E ratio of 17.450x which is lower than the industry mean of 29.03x reflecting that the company’s stock is undervalued and provides decent entry level. However, the company’s stock is quite volatile as, in the span of previous three months, it delivered the return of 20% while, in the time frame of previous one month, the return stood at -12.73%. The improvements in the supply chain have led to the reduction in sourcing as well as other costs in FY 2018, and initiatives in the month of January 2018 have started to reduce the lead time to deliver new stock to stores, and further reductions are anticipated moving forward.

However, the company is expected to be supported by healthy cash generation capabilities, decent distributions and by the prudent investments made in the online space. The company’s total revenues have witnessed the CAGR of 34.15% in the span of five years to FY 2018 i.e. (from FY 2014- FY 2018) which further builds the confidence in the company’s revenue-generating capabilities. The company’s new brands complement its existing brand portfolio as well as enhance the product offering with regards to core women’s market. Based on the foregoing and looking at current trading level, we give a “Speculative Buy” recommendation on the stock at the current market price of A$2.900 per share (up 0.694% on 9 April 2019).

 
NBL Daily Chart (Source: Thomson Reuters)

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