Myer Holdings Limited

MYR Details          

FY20 Results Update: Myer Holdings Limited (ASX: MYR) operates 60 departmental stores across Australia. It has one of Australia’s largest retail online sites myer.com.au. As of November 25, 2020, it has a market capitalization of $299.76 million. The sales have declined by 15.8% y-o-y to $2,519 million in FY20, owing to the disruption brought in by COVID 19 and store closures. At the end of the same time period, operating gross profit decreased by 17.6% to $957.3 million, mainly due to a sales mix that involved lower margin products. The CODB went down by 13.8% to $863.8 million in FY20 and comparable store sales were down by 3.3%. The company’s online business had seen record sales of $422.5 million in FY20, reflecting an increase of 61.1% on the previous corresponding period. Myer has now one of the largest online platforms in Australia, which is poised to reap the benefits of post-COVID shopping experience.

FY20 Financial Results (Source: Company Reports)

Outlook: The 2H20 has been challenging for the company with sales going down and a substantial reduction in footfall in the physical stores. However, the company can take comfort from the fact that its online business has been doing well and is one of the leading business units in the Australian market. Given its endeavor to focus on this segment, online sales are expected to contribute a significant portion of the revenue mix in the coming years. It is further banking on ‘Black Friday’ and ‘Cyber Monday’ sales, which is expected to be bigger than last year.  

Stock Recommendation: MYR has implemented Customer First Plan, given the current operating environment to capitalize on available opportunities and mitigate risks. It will further help to transform the customer’s experience in store with a simplified business process. As per ASX, the stock of MYR is trading above the average 52-weeks’ range of $0.083-$0.535 but retains potential for further growth. On a technical front, the stock of MYR has a support level of ~$0.282 and a resistance level of ~$0.4161. On a TTM basis, the stock of MYR is trading at an EV/Sales multiple of 0.8x, lower than the industry median (Specialty Retailers) of 1.7x and thus seems undervalued. Considering the current trading levels, dominant position in the online segment, and improved EBITDA margin, we recommend a ‘Hold’ rating on the stock at the current market price of $0.365 on 25 November 2020.

MYR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Mosaic Brands Limited

MOZ Details

Q1FY21 Quarterly Update: Mosaic Brands Limited (ASX: MOZ) is engaged in the retailing of women’s apparel and accessories. The market cap of the company is ~$78.29 million as of November 25, 2020. The online platform is seeing increased traction as online sales have gone up by 31% in comparison to the previous corresponding period. Stock Keeping Units (SKU’s) increased from 150,000 to over 250,000 in FY20. Gross margins improved to 67% compared to 61.8% for the pcp, riding on growth of online sales, reduced discounting and a 50% drop in inventory holdings. The company also reported an EBITDA growth of $8.3 million against prior year. The company is in a decent financial position with a net cash of $12.5 million. The company has closed around 73 stores since August, in order to waive off rentals and change in customer preferences towards online shopping. Mosaic expects to close further 250 stores by June 2021.

Q1 Online Sales (Source: Company Reports)

Outlook: With the easing of restrictions and lockdowns, MOZ expects there will be an increase in footfall of customers to visit their loyalty brands. The management expects to boost sales in the key months of November and December and return to profitability in 2021. It is also leveraging social media platforms like Facebook and Instagram to diversify its reach.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is increasing its reach and has diversified its revenue streams. Gross margins in 1QFY21 has increased year on year basis, and the company is looking to turn profitable again in FY21. As per ASX, the stock of MOZ gave a negative return of 10.11% in the past 6 months but a positive return of 60% in the past 3 months. As per ASX, the stock of MOZ is trading close to its 52-weeks’ low levels of $0.195, proffering a decent opportunity for the investors to enter the market. On a technical front, the stock of MOZ has a support level of ~$0.299 and a resistance level of ~$1.14. We have valued the stock using price to earnings multiple based illustrative relative valuation and have arrived at a target upside of lower double digit (in % terms). Considering the current trading levels, decent returns in the past three months, acceleration in online sales and key investment risks, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.80, down by 1.235% on 25 November 2020.

MOZ Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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