Stocks’ Details

Premier Investments Limited

Growth in Online Sales: Premier Investments Limited (ASX: PMV) is involved in specialty retail fashion chains within the specialty retail fashion markets in Australia, New Zealand, Asia, and Europe. The market capitalisation of the company stood at ~$2.75 billion as on 28^th July 2020. Due to the temporary closure of all retail stores in Australia, the company experienced a growth in online sales in Australia. The company’s largest online brand in Australia, Peter Alexander, has consistently broken its own weekly records with online sales growth of 295%. The online business of the company has a significantly higher EBIT margin as compared to the Group average. However, the government has announced the re-opening of stores in line with Step 1 of “3 Step Framework for a COVIDSafe Australia”. During 1H FY20, the company reported net profit after tax amounting to $99.6 million, up 12.2% on the previous corresponding period (pcp).

Key Financials (Source: Company Reports)

Outlook: The company has acted decisively and prudently for the long-term benefit of shareholders, employees, suppliers and other stakeholders. However, the company is not able to evaluate the impact of COVID-19 on 2H FY20 earnings, considering the uncertainty around the timing of the recovery. The company is scheduled to release its FY20 results on 18^th September 2020.

Key Risks: The company is mainly exposed to key financial risks such as credit risk, interest rate risk and foreign currency risk. PMV manages its exposure to key financial risks in accordance with Board-approved policies.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Net margin of the company stood at 13.6% in 1H FY20 as compared to the industry median of 4.0%. This indicates that the company possesses decent capabilities to convert its topline into the bottom line against the peer group. We have valued the stock using the P/E multiple based illustrative valuation method. For the purpose, we have taken peers such as Bapcor Ltd (ASX: BAP), Lovisa Holdings Ltd (ASX: LOV), City Chic Collective Ltd (ASX: CCX), etc., and arrived at a target price of high single-digit upside (in percentage terms). Hence, considering the growth in online sales, improvement in net margin and re-opening of stores, we give a “Hold” rating on the stock at the current market price of $17.150 per share, down by 1.039% on 28^th July 2020.

Bubs Australia Limited

Launch of New Product: Bubs Australia Limited (ASX: BUB) is engaged in the manufacturing of infant milk formula. The market capitalisation of the company stood at $558.34 million as on 28^th July 2020.  Recently, the company reached an agreement with Jennifer Hawkins (TV Celebrity) to be Bubs® Global Brand Ambassador for three-years. The company has rolled out a new range of infant and children’s vitamin and mineral supplement “Vita Bubs®”. This new product would be ranged in 400 Chemist Warehouse stores from October 2020.  During Q4 FY20, the company reported a growth of 20% in sales of Bubs® infant formula, reflecting 71% of quarterly gross revenue. As of 30^th June 2020, the cash reserves of the company stood at $26 million.

Cash Balance June 2020 Quarter (Source: Company Reports)

Fundamental Growth Drivers: The company is focused on three fundamental drivers for its long-term growth, which include sustainable leadership in vertical supply chain value creation, deepening consumer brand connection to generate scale & improved margin and expansion into new non-infant growth segments & new geographical markets.

Key Risks: The company is mainly exposed to credit risk, which arises from the default by counterparties on their contractual obligations. The business is also sensitive to market risk, which is influenced by fluctuation in market prices.

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

P/BV Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Current ratio of the company stood at 3.03x in 1H FY20 as compared to the industry median of 1.73x. This indicates that the company is in a decent position to address its short-term obligation against the broader industry. We have valued the stock using Price to Book Value multiple based illustrative relative valuation method and arrived at a target price of high single-digit upside (in percentage terms). For the purpose, we have taken peers such as A2 Milk Company Ltd (ASX: A2M), Synlait Milk Ltd (ASX: SM1), Bega Cheese Ltd (ASX: BGA), etc. Thus, considering the launch of new product Vita Bubs®, decent liquidity position and fundamental drivers for the company’s long-term growth, we give a “Hold” recommendation on the stock at the current market price of $0.950 per share, down by 2.564% on 28^th July 2020.

City Chic Collective Limited

Completion of Placement: City Chic Collective Limited (ASX: CCX) operates within women's fashion retail sector in Australia, New Zealand, USA, Germany and the UK. The market capitalisation of the company stood at $701.53 million as on 28^th July 2020. Recently, the company announced the successful completion of an $80 million fully underwritten placement. The company would use the proceeds raised from the placement to finance the potential acquisition of the eCommerce assets of Catherines, and to strengthen the balance sheet as well as to provide financial flexibility to accelerate growth globally. As part of capital raising, the company will offer a share purchase plan offer to eligible shareholders to raise around $10.0 million. On 23^rd July 2020, the company was selected as the Stalking Horse Bidder and inked an asset purchase agreement for the eCommerce assets of Catherines, owned by US-listed Ascena Retail Group Inc.

Sources and Uses of Proceeds (Source: Company Reports)

Strong Performance by Online Business: The company stated that the online business has continued to perform strongly, and most of its stores are back in operation and trading well despite the COVID related challenges of recent months.

Key Risks: As the company operates in a retail environment where quality and value for money comes first for the customers, thus, it is exposed to risk arising from the competition and consumer discretionary spending. The business is also sensitive to exchange rates and duties.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: During FY20, the company reported unaudited sales revenue amounting to $194.5 million, representing 31.0% of total sales growth. The company possesses a strong balance sheet with net cash of $3.9 million and debt facility of $40.0 million maturing in March 2023. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price of high single-digit growth (in percentage terms). For the purpose, we have taken peers such as Lovisa Holdings Ltd (ASX: LOV), Adairs Ltd (ASX: ADH), Accent Group Ltd (ASX: AX1), etc. Hence, in light of the growth in online sales, recent capital raising and acquisition of Catherines, we give a “Hold” recommendation on the stock at the current market price of $3.400 per share, down by 2.857% on 28^th July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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