Baby Bunting Group Limited

BBN Details

Change in Director’s Interest: Baby Bunting Group Limited (ASX: BBN) is a retailer and one-stop-shop for baby and nursey products. It provides products: prams, car seats, carriers, furniture, nursery, safety, babywear, manchester, changing, toys and feeding. On 22^nd February 2022, two directors Francine Ereira and Gary Kent acquired 779 and 4,000 fully paid ordinary shares, respectively. While on the other hand, Matthew Spencer disposed of 565,000 fully paid ordinary shares.

1HFY22 Highlights:

• Rise in Total Sales: With market share growth, expanded gross margin and well-controlled costs, the company recorded a growth of ~10.0 % Y-o-Y in its total sales to ~$239.1 million and a ~28.3% in a two-period. The comparable store sales grew by ~6.8%, and online sales contributed ~23.8% for 1HFY22.
• Profitability: Its gross profit increased by ~15.6% on a pcp basis and was recorded as ~$93.9 million with a Pro-forma NPAT of ~$12.5 million (~16.4% increase from 1HFY21). The gross margin also increased by ~192 basis points to ~39.3%.
• Cash Position: The company is supposed to distribute a fully franked interim dividend per share of $6.6 on 11^th March 2022, with a record date on 25^th February 2022. The half-yearly statutory accounts ending on 26^th December 2021, were closed with a cash balance of ~$15.0 million as compared to ~$14.7 million ending on 27^th December 2020.
  

Cash Balance Highlights; (Analysis by Kalkine Group)

Key Risks: The company might face the risk of volatility and uncertainty due to changing customer’s preferences and high competition in the market, followed by COVID-19 headwinds.

Outlook:

• By keeping in mind, a broader ~$5.1 billion growth in the baby goods market, BBN expects ~$2 million of CAPEX (Capital Expenditure) in its 2HFY22 and ~$4.5 million as its OPEX (Operational Expenditure).
• A ~$70 million debt facility is expected to be renewed in 2HFY22.
• By leveraging new headless e-commerce architecture benefits, the company want to focus on loyalty membership (“Baby Bunting family” program) and grow engagement.
• Two-Three new stores are on the cards for 2HFY22, thereby intimating a more substantial pipeline of stores for FY23.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:  The stock of the company has given a negative return of ~13.57% in the past six months. Currently, the stock is trading below the average of its 52-week low and high levels of $4.740 and $6.650, respectively. The stock has been valued using the EV/Sales based relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). After considering the changing market preferences, expected cyclical effect of Omicron COVID-19, and increasing debt-to-equity ratio, the company can trade at a slight discount to its peers. For the purpose of its valuation, peers like Lovisa Holdings Ltd (ASX: LOV), Super Retail Group Ltd (ASX: SUL), Kathmandu Holdings Ltd (ASX: KMD), and others have been considered. Considering the growth in baby market, rising revenues, growth in other financials, increasing ROE, driving expansion with increasing CAPEX in coming 2HFY22, indicative upside in the valuation, current trading levels, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the current market price of $4.795, as on 23 February 2022, 10:50 AM (GMT+10), Sydney, Eastern Australia.

BBN Daily Technical Chart, Data Source: REFINITIV

MyDeal.com.au Limited

MYD Details

Upcoming 1HFY22 Results: Through an online marketplace, MyDeal.com.au Limited (ASX: MYD) provides a variety of products that includes furniture, baby and kids, home and garden, rugs, toys and games, appliances, sports and outdoors, electronics, tools and equipment, health and beauty, books and media, and arts and entertainment. The company is pleased to inform that, its 1HFY22 results will be released on 28^th February 2022.

1HFY22 & 2QFY22 Highlights:

• Sell-Side: With a record of ~18.4% Y-o-Y increase (1HFY22: 963,882) in Active customers, the company instilled a record gross sale of ~$152.6 million in 1HFY22, an up of ~20.4% Y-o-Y from 1HFY21. At the same time, the quarter recorded total revenue of ~$19.0 million, an increase of ~61.7% Y-o-Y on a pcp basis.
• Cash Position: With ~$86.64 million a cash receipts from customers, the company recorded ~$5.99 million as cash outflow for the second quarter. The accounts were closed with a cash balance of ~$40.17 million in 2QFY22 compared to ~$47.23 million in 1QFY22.
  

Cash Balance Highlights; (Analysis by Kalkine Group)

Key Risks: The company might face the risk of volatility and uncertainty due to changing customer’s preferences and high competition in the market, followed by COVID-19 headwinds.

Outlook:

• MYD has already begun its 2HFY22 on a positive note of ~32.4% Y-o-Y increase for its first 18 days in its January gross sales.
• The company’s record sales in 1HFY22 are itself evidence of its continued strength of customer retention and acquisition, which is also stated by: ~60% of the transactions are coming from the returning customers. The company focuses on the same and, growing its in-stock business, developing the mobile apps.
• As the company envisages the shift of marketplace and customers from offline to online in the next coming 3-5 years, the company plans to initiate loyalty initiatives and channel advertising campaigns to promote the brand.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of MYD gave a negative return of ~32.16% in the past three months and a negative return of ~21.62% in the past six months. The stock is currently trading below the 52-weeks’ average price level band of $0.520- $1.255. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ mean EV/Sales multiple, considering the negative net margin and ROE, and uncertainty involved in the COVID-19. For this purpose of valuation, a few peers like Kogan.com Ltd (ASX: KGN), Redbubble Ltd (ASX: RBL), Marley Spoon AG (ASX: MMM) have been considered. Considering the low trading levels, 2QFY22 and 1HFY22 record gross sales and revenue, good gross margin, decent outlook, indicative upside in valuation, and other key risks associated, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.55, as of 23 February 2022.

MYD Daily Technical Chart, Data Source: REFINITIV  

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

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided. 

Technical Indicators Defined: -

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

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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