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

Long-Term Growth Drivers Intact: Noni B Limited (ASX: NBL) is primarily engaged in the business of retailing of the women’s apparel and accessories. As on September 24, 2019, the market capitalisation of Noni B Limited amounted to A$289.78 million. Recently, the company released its results for full-year ended June 2019 wherein it stated that after 4 years of comparable store growth, the company changed its strategy and focused on margin, which enabled it to achieve the underlying earnings before interest, tax, depreciation and amortisation (or EBITDA) of $45.5 million in FY19. The company’s net profit after tax (or NPAT) amounted to $8.2 million as compared to $17.3 million in the prior period. This includes the restructuring costs before tax of $9.1 million and $10.6 million of the additional depreciation charges relating to acquired brands. In line with decent financial performance, the shareholders of the company received fully-franked interim dividend of 9 cents per share (cps) in the month of March 2019 and will receive a fully-franked final dividend of 5.5 cents per share which will be payable on 24 October 2019 with record date of 10 October 2019, bringing total dividends for the year to 14.5 cps. When the company announced an acquisition of Specialty brands, they conservatively anticipated them to break-even on an EBITDA basis in FY19, and further returning to profit in FY20. The company has achieved the anticipated synergies and merger benefits ahead of schedule and identified additional efficiencies, resulting in 5 brands, collectively, making positive earnings contribution for the year. The balance sheet of the company has continued to strengthen with the positive operating cash flow of $23.5 million, and net cash of $7.1 million at the year-end.

Moving forward, there are expectations that decent capabilities to garner revenues and build cash levels, strengthening the position of balance sheet, and standardised operating platform might act as tailwinds for long-term growth. There are expectations that the company’s omni-channel strategy would be a pillar of the group’s growth in FY20 and beyond.


Financial Highlights (Source: Company Reports)

Overview of NBL’s Margins: The company’s gross margins stood at 56.6% in FY19 as compared to the industry median of 22.3%, and its EBITDA margin stood at 5.4%. NBL posted a decent current ratio of 0.90x in FY19. The company would continue to review the growth opportunities via acquisitions to expand its current business. Its brands’ strong customer loyalty offers considerable potential to broaden the range of the products it sells, and plan to capitalise on this during the upcoming year, with accelerate investment in its online strategy. On July 2, 2018, the company wrapped up the acquisition of the portfolio of 5 women’s fashion brands from Specialty Fashion Group, which transforms NBL into one of the dominant retail fashion groups in ANZ, and it reinforces the focus on its specific market segment. The company’s key personnel further stated that the acquired portfolio had not been profitable for some time, but the 5 brands complemented the company’s existing business. In the month of November 2018, the company was pleased to make an announcement that cost synergies amounting to $30 million had been achieved. ROE and ROIC stood at 7.5% and 5.0%, respectively, with a debt to equity ratio of 0.28x in FY19.


Key Metrics (Source: Thomson Reuters)

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

Top 10 Shareholders (Source: Thomson Reuters)

Online Sales Contribution Increased in FY19: The company stated that the standardised operating platform allows it to cross-sell throughout all the brands, improves the shopping experience and increases speed to the market for new site enhancements. In FY19, the online sales witnessed a rise by 4% to 9.8% of the total group sales, as shown in the below picture:


Online Sales Contribution (Source: Thomson Reuters)

It was added that the company’s omni-channel strategy would act as a pillar of NBL’s growth in FY20 and beyond. The company continues to deploy towards this, expanding its dedicated team, adding the new digital marketing channels as well as improving experience of the customers.

Significant Increase in NBL’s Revenue in FY19: The company’s revenue for FY19 stood at $881,920,000, which reflects a rise of 136.8% as compared to the previous year. NBL’s cash and cash equivalent balance at the end of the year stood at $36,612,000, and the total bank debt amounted to $29,482,000. The company’s cash from operating activities resulted in an inflow of $23,483,000 as compared to $21,728,000 in FY18. The company’s management controls the capital of the company to maintain a sustainable debt to equity ratio, generate the long-term shareholder value and ensure that the company can finance its operations. The following picture has been extracted from the company’s annual report:


Total Debt and Equity (Source: Company Reports)

The company’s management effectively manages the capital by assessing NBL’s financial risks as well as adjusting the capital structure in response to changes in these risks and in the market. The responses consist of management of the debt levels, distributions to shareholders and share issues.

Optimistic on Earnings: In line with the decent financial performance, the company’s shareholders received fully-franked interim dividend amounting to 9.0 cents per share in the month of March 2019 and would receive fully-franked final dividend of 5.5 cents per share which would be paid in the month of October 2019, which resulted in total dividends of 14.5 cents. The total dividend of the company for the year reflects the payout ratio above NBL’s stated policy of 60-70% of the underlying net profits, and it reflects confidence in earnings growth for FY20. The company would continue to buy the shares on the market under the buy-back scheme, wherever needed.

What to Expect from NBL Moving Forward: Throughout FY20, the company would continue to focus on 2 major growth areas which are increasing the store network footprint throughout all the brands and driving the digital expansion. Currently, the company is anticipating EBITDA in FY20 to be in line with that of the market consensus of $75 million. The company looks forward about potential, which is to be unlocked through greater analysis of data, store expansion as well as online strategies. There are expectations of further growth in revenue and earnings in FY 2021 and beyond.

In the month of February 2019, the company indicated that FY20 earnings would be benefiting from yet further efficiencies and the margin improvements because of the company’s focus towards profitable sales. The company happens to be a significant multi-brand retail group, and it believes that this needs to be reflected in corporate branding. Accordingly, at AGM in the month of November 2019, the company would be inviting shareholders in order to approve a change in the company’s name to Mosaic Brands Ltd. This is also a significant milestone, and it is reflective of synergistic and complementary collection of brands which are part of the portfolio.


Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodology: Price to Cash Flow based Valuation

Price to Cash Flow based Valuation (Source: Thomson Reuters), *NTM: Next Twelve Months

Note: All forecasted figures and peers have been taken from Thomson Reuters.

Stock Recommendation: The company’s stock has delivered the return of 19.60% in the span of previous one month while, in the time frame of previous three months, it posted a return of 4.18%. The company’s top-line has witnessed a significant CAGR growth of 99.84% in the time frame of between FY16- FY19, which can be considered at respectable levels. However, between FY16- FY19, the company’s net income has encountered a CAGR growth of 54.41%. There has been a CAGR growth in the company’s cash from operating activities and cash receipts of 45.20% and 97.99% in the time frame of FY16- FY19, respectively. It can be said NBL’s sound capabilities to generate revenues and build cash levels might help the overall company in achieving the long-term growth objectives. In the span of past five years, the company has grown to be one of the leading fashion retail groups in Australia. The company’s balance sheet has been strengthening, which might help it in gaining traction among the market participants. Based on the foregoing and looking at decent growth in the long run, we have valued the stock using relative valuation method, i.e., Price to Cash Flow multiple and arrived at the target price upside of lower double-digit growth (in % term). Hence, we give a “Buy” recommendation on the stock at the current price market price of $2.990 per share on 24 September 2019.
 

NBL Daily Technical Chart (Source: Thomson Reuters)

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