Stocks’ Details

Accent Group Limited

Strong Fundamentals: Accent Group Limited (ASX: AX1) is a small-cap company with the market capitalization of circa $795.62 Mn as of October 09, 2018. On the financial front, the group has recorded EBITDA growth at CAGR of 51.9 percent over the five years. Resultantly, the EBITDA margin came in at 15.2% on a 5-year average basis (FY14-18) and AX1 is targeting mid-single digit EBITDA growth in FY19 on the back of low single digit LFL store growth, continued strong digital growth, new stores, stores annualising from FY18, continued margin improvement through vertical and emerging brands and reduced discounting, which will primarily benefit margins in 1HFY19. However, for FY18, EBITDA margin was up by 78 bps to 12.9% on YoY basis due to strong retail growth, vertical brands penetration and the strategy to reduce discount driven retailing compared to prior year. On the valuation front, the Group has generated strong shareholder return of 177% over the five year, representing Compound Annual Growth Rate (CAGR) of 22.6% during the same period.Further, the company has a price-to-book value ratio of 2.0x, and this may look to be on a lower side while comparing with the industry average of 2.96x and represent undervalued stock at the current juncture. Hence, we expect that the Group will continue to deliver consistently increasing shareholder value through sustainable sales and profit growth, avoiding lazy retailing and through a strong balance sheet.


Underlying EBITDA Trend (Source: Company Reports)

Meanwhile, the share price has fallen 9.54% in the past three months as at October 08, 2018 and traded at reasonable PE of 17.860x. The stock has beta of 0.62x as on 5-Year (monthly basis), and is on an undervalued level at the current juncture and representing low-risk option among the peer group. We give a “Hold” recommendation on the stock at the current market price of $1.460.
 

Baby Bunting Group Limited

Expecting Moderate Comparable Store Sales Growth to Certain Extent: Baby Bunting Group Limited (ASX: BBN) issued 200,000 Right Shares subjected to the terms and conditions of the Long-Term Incentive Plan, as described in the 2018 Remuneration Report. Of which, about 50% of the Rights shares will be subject to the absolute EPS growth performance condition and the rest half will be subject to the absolute TSR growth performance condition. Recently, BBN disclosed to ASX that one of its directors, Gary Levin had an Indirect Interests in the Company, and has offloaded its 188,000 shares via on-market trade at the total consideration of $458,654. It was observed that the group has recorded decent fundamentals backed by consistent track record of profitable growth with significant opportunity to scale up; differentiated business strategy (i.e., low-cost business model); and strong balance sheet, low working capital needs and sustainable RoE of more than 9%. Additionally, for FY 19, BBN expects the Gross margin to recover by more than 34% against FY18’s gross margin of 33.3%. As at 05 August 2018, BBN recorded Comparable store sales growth of 9.8 percent for the first 6 weeks of FY19 and anticipates the same trend to be continued for the remainder of the year. We believe that the new stores will deliver a healthy Comparable Store Sales Growth (SSG), whereas matured stores’ growth will be closer to the inflation rate. Going forward, as the number of matured store increases, we expect Comparable Store Sales Growth (SSG) to further moderate to a certain extent.

Gross Profit and Margin Trend (Source: Company Reports)

On the valuation front, the company has a price-to-earnings ratio of 36.09x. It has posted a return on equity (RoE) of 9.2%, return on invested capital (RoIC) of 8.2 percent and has debt-to-equity ratio 0.11x in FY18. Over the last five years, the company’s revenue and PAT have grown at a CAGR of 19.2 percent and 20.7 percent, respectively. Meanwhile, the share price has risen 68.24% in the past three months as of October 08, 2018 and looks poised to grow in the session to come. Hence, we give a “Buy” recommendation on the stock at the current market price of $ 2.54, assuming further upside from the current levels.
 

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