Company Overview: Redbubble Ltd is an Australia-based company, which operates an independent designers' marketplace. For men, the Company offers T-Shirts, Classic T-Shirts, Tri-blend T-Shirts, Graphic T-Shirts, V-Neck, Long Sleeves, Tank Tops, Hoodies, Lightweight Hoodies, Sweatshirts and Lightweight Sweatshirts. For women, it offers T-Shirts, Chiffon Tops, Contrast Tanks, A-Line Dresses, Graphic T-Shirt Dresses, Fitted Scoops, Fitted V-Necks, Relaxed Fit, Tank Tops, Hoodies, Leggings, Scarves and Mini Skirts. For kids, the Company offers Kids T-Shirts, Baby T-Shirts and Baby One-Pieces. The Company also offers cases and skins, such as iPhone Cases, iPhone Wallets, Laptop Skins and Laptop Sleeves; stickers; wall art, such as Posters, Canvas Prints, Photographic Prints, Art Boards and Art Prints; home decor, such as Throw Pillows, Duvet Covers, Mugs and Clocks; stationery, such as Greeting Cards, Postcards and Calendars, and bags, such as tote bags, drawstring bags and studio pouches.


RBL Details
 

Decent Outlook: Redbubble Limited (ASX: RBL or RB Group) is a small-cap global online marketplace company with the market capitalisation of circa $381.33 Mn as of 1 October 2019.  The company recently released its preliminary final report for the year ended June 30, 2019 where marketplace revenue increased by 41% YoY to $257 Mn on June 30, 2018. RB Group’s FY19 financial performance reflected the core strengths of marketplace while benefiting from management discipline across income statement and value of the TeePublic acquisition. The growth in marketplace revenue was because of accelerating TeePublic business. At Redbubble, the results from strategic investments lay the groundwork for the return to healthy top-line growth, which might attract the attention of the market participants. Considering the historical performance of the company for the last 5 years, unique customers have grown from 1.4 million in FY15 to $5.4 million in FY19, equating a CAGR growth of 39%. RB Group has been strengthening its gross margins leveraging scale as well as localisation benefits in fulfillment and shipping along with pricing optimisation in order to increase effective take rate. The total cash balance rose by $7.8 million as compared to $6.6 million decrease in FY18. The closing cash balance as at June 30, 2019, stood at $29.0 million. The aggregate operating and investing cash outflow (negative free cash flow) amounted to $3.1 million in FY19, which implies an improvement by 56% as compared to $6.9 million in FY18.  Additionally, it stated that Redbubble Group has no debt and, thus, it can be said that it is possessing a stable balance sheet. The operating EBITDA profit amounted to $3.8 million, which implies an improvement of $7.7 million from FY18 loss figure of $3.8 million. In the month of November 2018, the company’s wholly-owned subsidiary, Redbubble Inc., wrapped up the acquisition of TP Apparel LLC, which owns and operates TeePublic business. The acquisition was financed by the capital raising through institutional placement and entitlement offer. The total consideration for acquisition amounted to US $41 million. Geographically, the company has footprints across Australia, United States, United Kingdom, and rest of the world which contributed revenue of around 6.3%, 65.2%, 11.2%, and 17.4%, respectively to the total revenue in FY19. 

Moreover, the Group has a large addressable market which is trending towards on-demand commerce. We believe that the company has a decent outlook at the back of (1) strategic investment, (2) increasing brand awareness, (3) new product launches, and (4) continued growth in customers, with more engaged repeat customer, accelerating membership base, and improve mobile experience.  Also, the capabilities to build cash levels, garner revenues and zero debt might act as tailwinds for long-term growth.
 

FY19 Key Numbers (Source: Company Reports)

Top 10 Shareholders: The following picture provides an overview of the top 10 shareholders in RBL:


Top 10 Shareholders (Source: Thomson Reuters)

YoY Improvement in Key Margins: The company has witnessed a YoY improvement in FY19 in its key margins which might attract the attention of the market players. The company has zero debt and, thus, it can be said that RBL is well-placed to focus on its long-term growth parameters in a more effective way. Generally, lesser debt implies a stable balance sheet for the company. In FY19, Redbubble’s gross profit amounted to $95 million, which reflects a rise of 48% (while there was an increase of 41% on a constant currency basis). The gross profit margin rose by 1.8pp and stood at 36.8% (based on the marketplace revenue).


Key Metrics (Source: Thomson Reuters)

Significant Rise in Marketplace Revenue from Members: RB Group has been making progress in areas of the strategic investment, which are critical to the long-term marketplace growth and profitability. The product revenue from the authentic sellers at Redbubble rose 39% and represented 76% of the Redbubble product revenue and RB Group on-boarded a total of 48 brands, with 25 new brands in 4Q FY19. The marketplace revenue from members witnessed a rise of 109%, which equates to 29% of the Redbubble marketplace revenue. It was added that 5 new products were launched resulting from the re-platforming work enabling efficient as well as fast new product roll-outs.

Key Takeaways from Investor Presentation: In the investor presentation dated July 30, 2019, it was mentioned that RB Group connects the authentic artists and content partners with the millions of loyal customers, which enables personalised adventures in creativity. RB Group has a huge addressable market and, thus, it can be said that the company could achieve growth over the long-term. The below picture provides a broader overview of the addressable market:


Addressable Market (Source: Company Reports)

There are expectations that the total global online market for the Apparel and Homewares might grow at 10- 14% p.a. to 2020. It was mentioned that the personalised products on-demand would be becoming more mainstream as technologies mature to support the enhanced access to quality as well as affordable products. The flexibility in fulfilment network has numerous other benefits such as margin improvement, new product launches, multiple fulfillers, increased sales at the holiday peak and natural hedge.

Decent Revenue Generation Capabilities: The company’s total revenue has witnessed a CAGR growth of 44.15% between FY15- FY19, which reflects that RBL has decent capabilities to generate revenues. During the same period, there has been a CAGR growth of 45.65% in RBL’s cash, which reflects that the company has sound abilities to build its cash levels. It can be said that capabilities to garner revenues and build cash levels might support its long-term growth objectives.

The company’s cash receipts have witnessed a CAGR growth of 39.28% between FY 2015- FY19, which can be considered at decent levels. Additionally, RBL’s cash from operating activities has significantly improved between FY 2015- FY19, that reflects that there has been improvement in the operational capabilities of RBL.

What to Expect from RBL Moving Forward: RB Group has a target of long-term growth in the large addressable market. The business demonstrated progress throughout numerous strategic initiatives aimed at diversifying the sources of growth as well as profitability. The company’s priorities revolve around launching and selling the products which artists want to design for, and customers would love, launching and expanding content partnerships with world’s leading fan art brands and maintaining robust growth and synergy value of TeePublic, leveraging the new product, on-boarding content partnerships as well as geographic growth opportunities.

However, the priorities also include persisting in the current discipline to improve take rate, extract maximum value from the marketing channels, and maintain operating expenses and cash discipline. RB Group would no longer be providing specific short-term financial guidance. The business is focused on strategic work in order to reach a milestone of $1 billion in the sales, and current economics reflect that this could be achieved profitably. For TeePublic business, significant progress was made throughout aspects like paid marketing, content partners, Europe, supply chain improvements, and improving margins. There are expectations that the company’s decent capabilities to generate revenues and build cash levels might act as tailwinds for long-term growth.


Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodology: PE-based Valuation

PE-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 18.40% in the span of previous one month while in the time frame of previous three months the stock rose 61.75% which can be considered at decent levels. RB Group’s priorities include building deeper relationships with authentic artists by increasing their commercial success and growing customer base and increase loyalty through personal “creative adventures” as well as member experiences. Another point to note is that the company is possessing respectable operational capabilities which could help in driving growth over the long term. Considering the aforesaid facts, we have valued the stock using a relative valuation method, i.e., Price to Earnings multiple and arrived at a target price of high single-digit (in % term).  Hence, we give a “Buy” recommendation on the stock at the current market price of A$1.490 per share (up 0.676% on 1 October 2019).
 
 
RBL Daily Technical Chart (Source: Thomson Reuters) 

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.