Stocks’ Details
Premier Investments Limited
Decent Growth in Retail EBIT: Premier Investments Limited (ASX: PMV) is engaged in the retail fashion chains within the specialty retail fashion markets in Australia, New Zealand, Asia, and Europe. The Group also has significant investments in listed securities and money market deposits. As on 25 September 2020, the market capitalization of the company stood at ~$3.04 billion. The company has recently announced results for FY20, wherein it reported a decline of 4.3% on retail sales of $1,216.3 million but a growth of 11.9% in underlying retail EBIT to $187.2 million. In the same time span, the company reported record online sales to $220.4 million, up by 48.8% on previous record FY19. During FY20, the company also reported a healthy balance sheet with an increase in cash balance to $448.8 million. The Board has also declared a fully franked final dividend of 36 cents per share, taking full-year dividends to 70 cents per share in line with last year.
FY20 Financial Highlights (Source: Company Reports)
Restructure Accelerating due to COVID-19: Over the past several years, the company made significant investments in its online channel and seems to be well placed to maximize this swing in customer shopping preference. This swing has further increased the company’s focus on every store’s profitability.
Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)
Price to Cash Flow 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 online business of the company seems to be well poised for the upcoming Black Friday, Cyber Monday, and Christmas trading period. The company has seen significant sales growth of 92% in the first six weeks of FY21. As per ASX, the stock of PMV gave a return of 101.58% in the past six months and a return of 10% in the past three months. The stock is trading close to its 52-weeks’ high level of $21.56. On a technical front, the stock of PMV has a support level of ~$9.156 and a resistance level of ~$20.81. We have valued the stock using the P/CF multiple based illustrative relative valuation and have arrived at a target upside of higher single-digit (in % terms). For the said purposes, we have considered Michael Hill International Ltd (ASX: MHJ), Baby Bunting Group Ltd (ASX: BBN), etc., as peers. Considering the current trading levels, attractive returns in the past six months, record online sales and modest long-term outlook, we recommend a ‘Hold’ rating on the stock at the current market price of ~$19.00, down by 0.68% on 25 September 2020.
Mosaic Brands Limited
Accelerating Online Sales: Mosaic Brands Limited (ASX: MOZ) is engaged in the business of retailing of women’s apparel and accessories. As on 25 September 2020, the market capitalization of the company stood at ~$46.88 million. During FY20, the company reported underlying EBITDA loss of $45.8 million, driven by bushfires and store closures due to COVID-19 during the peak season. However, the company saw an accelerating online digital department store sale of $93.7 million for the year and a growth of 35.9% in the second half. During FY20, the company delivered comparable store margin growth of over 4.1%, driven by margins growth.
FY20 Financial Highlights (Source: Company Reports)
Outlook: The company is focusing on margin growth through lower discounting and is accelerating expansion of categories and SKUs’ across the Group’s digital department stores. The company has identified a further savings of $18 million in CODB in FY21. The company is also launching exclusive beauty bars across the entire portfolio in FY21.
Stock Recommendation: The company is focusing on increasing its share of wallet growth and is expanding into new categories in FY21. The company seems to be well-positioned to return to sustainable profitability in FY21. As per ASX, the stock of MOZ gave a return of 61.67% in the past six months and is trading close to its 52-weeks’ low level of $0.195, proffering a decent opportunity for accumulation. On a technical front, the stock of MOX has a support level of ~$0.220 and a resistance level of ~$0.67. On a TTM basis, the stock of MOZ is trading at an EV/Sales multiple of 0.2x, lower than the industry median (Consumer Cyclicals) of 1.5x. Considering the current trading levels, returns in the past six months, and decent long-term outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of ~$0.485 on 25 September 2020.
Michael Hill International Limited
Record Digital Sales: Michael Hill International Limited (ASX: MHJ) operates predominately in the retail sale of jewellery and related services sector in Australia, New Zealand, and Canada. As on 25 September 2020, the market capitalization of the company stood at ~$152.03 million. The company has built a strong sales foundation and achieved increased year-on-year EBIT prior to COVID-19, with same store sales of over 5.7% for the first eight months. However, the stores closures due to COVID-19 impacted its full year performance. During FY20, revenue of the company stood at $492.1 million, reflecting a fall of 13.6% on FY19 and underlying trading EBIT went down by 25.8% to $25.7 million in FY20. However, the digital sales of the company increased by 54.7% to a record $24.7 million.
FY20 Financial Metrics (Source: Company Reports)
Outlook: The company is emphasizing on growth and margin upliftment and is expanding marketplace sales opportunities. MHJ continue to pivot marketing investments into more efficient digital channels and is focused on launching new pure play digital brand in Australia. The company is building on retail fundamentals to optimize store capacities and layouts.
Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)
Price to Cash Flow 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 delivered on several digital initiatives and is working on improving its margin. As per ASX, the stock of MHJ gave a return of 67.02% in the past six months and a return of 22.66% in the last one month. The stock is inclined towards its 52-weeks’ low level of $0.220, proffering a decent opportunity for the investors to enter the market. On the technical analysis front, the stock of MHJ has a support level of ~$0.29 and a resistance level of ~$0.56. Considering the attractive trading levels, decent returns in the past one month, and expanding sales opportunities, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of ~$0.405, up by 3.316% on 25 September 2020.
Daily Comparative Chart (Source: Refinitiv, Thomson Reuters)
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