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

Focus Towards Acquisition Synergies Might help Growth Momentum: Noni B Limited (ASX: NBL) is an Australia-listed company, which is primarily engaged in the retailing of women’s apparel and accessories. As on June 11, 2019, the market capitalization of Noni B Limited stood at ~A$278.15 million. The company had earlier reported its results for 1H FY19 in which it generated total revenues amounting to $464.4 million, which reflects a substantial rise of 140.4% on YoY basis, following the acquisition of the 5 brands from Specialty Fashion Group on July 2, 2018. Its underlying EBITDA amounted to $29.1 million, which reflects a rise of 31.4% from 1H FY 2018. The company added that robust Christmas trading had led to the like-for-like sales growth of +1% for December month and, as a result, the company delivered -3.1% in like-for-like sales for the half year ended December 2018 as compared to -5% announced to the end of October. Also, the company’s cash flow was robust as cash-on-hand at 30 December 2018 stood at $64.7 million as compared to $34.1 million in December 2017 (+89.9%), resulting in a net cash position of $42.4 million. As a result, we expect that the company enjoys a sound cash position, which provides sufficient headroom for further growth.


Key Metrics of Noni B Limited (Source: Company Reports)

The top management of the company had reflected favorable views with respect to the improved November and December trading result. They added that this was the direct outcome of core strategies which were implemented after the acquisition to rebuild acquired five brands’ product range, variety as well as stock levels along with enhanced emphasis towards each brand’s specific customer base.

Moving forward, the company’s deployments towards online channels, enhanced product offering as a result of acquisitions, synergies, implementation of core strategies, and net cash position might act as tailwinds for the future growth. Also, the respectable annual dividend yield might also attract the attention of the dividend-seeking investors.

Top 10 Shareholders: The following table provides a broad overview of the top 10 shareholders of Noni B Limited:

Top 10 Shareholders (Source: Thomson Reuters)

Decent Margin Standing Further Supports Confidence in Operational Capabilities: In FY 2018, Noni B Limited had posted gross margins of 64.9%, which implies a rise of 1.1% that reflects strength in the company’s revenue-generation capabilities. Also, during the same period, its net margin stood at 4.6%, which implies a rise of 3.6% on YoY basis that reflects the company’s strength in converting its top line into the bottom line. However, in 1H FY 2019, its gross and net margins were 56.7% and 2.1%, respectively.


Key Metrics (Source: Thomson Reuters)

Also, the company’s Debt/Equity ratio stood at 0.19x in 1H FY 2019, reflecting a fall of 35.6% on the YoY basis, which implies that the company has been deleveraging its balance sheet. The reduction of debt on the balance sheet is considered positive largely because it reduces the burden of commitments to the holders.

Growth in Online Sales Witnessed in 1H FY19 on YoY Basis: Noni B Limited had stated that its online growth has accelerated as compared to the last year and it is growing ahead of the market. The company’s sales via online channels witnessed a rise of 27.9%, which represents 9.0% of total sales in 1H FY 2019, a rise from 5.8% in FY2018. The company stated that it had deployed in building as well as strengthening the online team and there has been an improvement in the mobile customer experience. Noni B Limited had stated that they have deployed towards new digital marketing channels.

 
Online Growth (Source: Company Reports)

Appointment of Non-Executive Director: Noni B Limited had recently made an announcement about the appointment of Jacqueline A Frank as a Non-Executive Director. Jackie happens to be one of Australia’s most experienced media executives who is having a deep background and understanding of retail and fashion sector. The Chairman of Noni B Limited had reflected favourable views with respect to this new appointment. He stated that her knowledge as well as experience, particularly her understanding of the customer, would be invaluable to the company.

Acquisition of Brands from Specialty Fashion Group: On July 2, 2018, Noni B Group had made an acquisition of the Millers, Autograph, Crossroads, Rivers and Katies brands from Specialty Fashion Group via a purchase of assets. Noni B Limited had stated that the brands which have been acquired operate within the retail of women’s apparel and accessories. As a result, the acquisition enhances the product offering to NBL’s core women’s apparel market. The acquisition gives substantial synergies through combining supply chain as well as logistics, integrating online infrastructure and systems, optimising store portfolio and leveraging Noni B Limited’s expanded purchasing size.

Noni B Limited had stated that the acquisition of loss-making Specialty Fashion Group brands for the consideration amounting to $31 million had more than doubled the NBL’s size. At the time, the company had anticipated restoring the acquired brands to EBITDA break-even in FY2019, and the company now expects them to achieve positive EBITDA for the current year.

What To Expect From Noni B Limited: Noni B Limited had stated that even though the like-for-like growth in the sales had continued into 2H FY 2019, the company anticipates that the market would be challenging. The company had reaffirmed that its EBITDA continues in line with the market consensus of around $45 million for the full FY 2019 financial year. Noni B Limited expects that the full year benefit of synergies, coupled with the improvements with respect to gross margin, might result in FY 2020 EBITDA exceeding the $75 million consistent with the market consensus.

The company had also stated that the continued focus towards operating costs happens to be on track to deliver previously announced additional cost synergies amounting to $20 million by June 30, 2019, over the achieved $30 million (on an annual basis). Above this, the company expects further efficiencies and margin improvements to add to FY 2020 earnings. The company stated that its key focus and strategies include deployment towards the online presence, restocking the acquired brands to the optimum levels as well as product purchase price synergies.

Noni B Limited had stated that putting the customer at the heart of everything, the company does support all the aspects of the business. This includes creating an environment in its stores where customers feel comfortable and confident. The company added that they have begun to create a more customer-focused experience in five new brands’ stores, and this would be having an increasing impact as the company roll out new store designs. Additionally, we expect that the prudent deployments toward the online channels and its online presence might act as a tailwind moving forward.


Key Valuation Metrics (Source: Thomson Reuters)

EV/EBITDA Multiple Approach (NTM):

EV/EBITDA Multiple Approach (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, *NTM-Next Twelve Months

Stock Recommendation: The stock of Noni B Limited had delivered the return of 3.61% in the span of previous six months while, in the time frame of previous one month, the stock had generated the return of 7.09%, which can be considered at respectable levels and can attract the attention of market players. On February 21, 2019, the Board of Directors had declared an interim dividend amounting to 9.0 cents per share. The company’s Chairman had reflected favorable views with respect to the announcement of the continuation of Noni B’s payment of dividends, which reflects its sustainable, and growing, underlying profitability.

The company had witnessed the CAGR of 34.15% in its top line in the time span of FY 2014 to FY 2018, which reflects the company’s capabilities to generate revenues. However, it also looks like the company’s strategic initiatives are being executed well. The company had witnessed a significant turnaround in its bottom line between FY 2014-FY 2018 which reflects its operational capabilities. Also, the company’s annual dividend yield stood at 4.53%, which is slightly higher than the industry median of 4.4% and, thus, it looks like that the company is also focusing on declaring dividends despite making deployments towards business initiatives and online channels. Based on the foregoing, we have valued the stock using Relative Valuation method, EV/EBITDA multiple and arrived at a double-digit upside growth (in %). Hence, we give a “Buy” recommendation on the stock at the current market price of A$2.900 per share.
 
 
NBL Daily Chart (Source: Thomson Reuters)

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