Retail Turnover Amplified Amid Resurgence of Discretionary Spending

Rising Ecommerce Activities and Digital Innovations Scaling Retail Trade

Key Parameters Supporting the Retail and Consumer Products

Key Risks and Challenges

Outlook

Considering the developments in the retail and wholesale trade, we have figured out three stocks on ASX that are set to see momentum.

(1) ­­­Lovisa Holdings Limited (Recommendation: Buy, Potential Upside: Low Double-Digit)

(M-cap: AUD 1.53 billion, Annual Dividend Yield: 3.85%)

Company Overview: Lovisa Holdings Limited (ASX: LOV) operates in the retail section and sells fashion jewellery and accessories in Australia.

Growing Top Line and Bottom Line with the New Stores: In FY21, the revenue was up by ~18.9% Y-o-Y and reported as AUD 288 million, and online stores grew by ~178%. The EBIT of the company increased by ~39.4%, and NPAT grew at ~43.4% on a PcP basis, to AUD 42.7 million and AUD 27.7 million, respectively.

Growth Witnessed in Store network: In 1HFY22, with an uptick of ~21.5% in comparable-store sales, the company clocked a ~48.3% hike in its revenue to AUD 217.8 million, reflecting growth in the store network. The company opened 42 net new stores and maintained CODB (Cost of Doing Business) at 51.8% to sales, despite facing temporary store closures and sales disruption. Available liquidity stands at AUD 52.7 billion, and statutory NPAT showed a hike of ~70.3% to AUD 36.18 million.

Outlook: The company might face some cost pressures in global logistics due to worldwide shipping capacity constraints. However, the first eight weeks of the second half showed a ~12.1% growth in FY21 in its comparable-store sales.

(2) ­­­Flight Centre Travel Group Limited (Recommendation: Speculative Buy, Potential Upside: Low Double-Digit)

(M-cap: AUD 3.47 billion, Annual Dividend Yield: 0.00%)

Company Overview: Flight Centre Travel Group Limited (ASX: FLT) is an Australia-based travel company, including corporate and leisure sectors.

Improving Resilience with Corporate Contract Wins: In FY21, the company clocked an operating revenue of AUD 396 million relative to AUD 1,897 million in FY20. This is primarily attributed to the COVID-19 travel restrictions. The company encouraged some cost reduction strategies, reflected in an overall decline in expenses. Underlying losses before tax stood at AUD 507 million. The revenue uplifted in 2HFY21 relative to 1HFY21 by AUD 76 million.

Momentum in Total Transaction Value: In 1HFY22, the company embarked upon a total revenue of AUD 316 million relative to AUD 159 million in 1HFY21 (Reinstated). Underlying EBITDA stood at a loss of AUD 184 million. The group’s Total Transaction Value (TTV) enlarged by AUD 1.73 billion to AUD 3.263 billion. The sales recovery was witnessed immediately after the August – September delta waves.

Outlook: FLT targets a return to monthly profitability in leisure and corporate during FY22. The company is well placed in recovery mode amid a robust pipeline of corporate account wins to improve recovery in the Americas & EMEA.

(3) ­­­Costa Group Holdings Limited (Recommendation: Hold, Potential Upside: Low Double-Digit)

(M-cap: AUD 1.33 billion, Annual Dividend Yield: 3.12%)

Company Overview: Costa Holdings Limited (ASX: CGC) is Australia’s leading growers, packers, and marketers of fresh fruit & vegetables. It operates in five core categories: berries, mushrooms, glasshouse tomatoes, citrus, and avocados.

Growth Capex in Major Projects may Deliver Fundamental outperformance: In FY21, total revenue stood at AUD 1,220.6 million, up by 4.8% PcP. International sales climbed 30% PcP, and underlying results were affected by a revenue decline in Avocado, offset by improvements in Mushroom, Berry and Tomato segments.

Cash Flow Position: Operating cash flows declined to AUD 114.7 million relative to AUD 137.9 million in FY20, driven by high tax payments of AUD 23.1 million (FY20: AUD 0.3 million). Growth capex stood at AUD 84.4 million, including the commencement of international expansion, completion of Tomato GH4, and Avocado protection via substrate trellis crop program.

Outlook: A rebound from Colignan farm is expected, delivering benefit from a maturing tree age profile. Berry volumes have been higher than the forecasts with a favourable pricing impact. Tomato and Mushroom production are significantly uplifted on a PcP basis.

Comparative Price Chart

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock of the Target Price mentioned as per the Valuation has been achieved and subject to factors discussed above.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.

---

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.