Stocks’ Details

Redbubble Limited

4QFY20 Update: Redbubble Limited (ASX: RBL) owns and operates the leading global online marketplaces hosted at Redbubble.com and TeePublic.com. In a business update provided on 7 August 2020, the company informed that the increasing shift to online shopping has helped the company to achieve improved results across all core geographies and product categories. For Q4 FY20, the company reported marketplace revenue of $122 million, up 107% on the previous corresponding period (pcp). In the month of July alone, the company saw a yoy growth of 132% in marketplace revenue, which stood at $49 million. Face masks that were launched at the end of April 2020, have contributed a marketplace revenue of $26 million till 31 July 2020. For FY2020, the company reported marketplace revenue of $368 million, up 43% on pcp. The complete FY20 results are expected to be released on 21 August 2020.

H1FY20 Result Highlights: In the first half of FY20, the company reported total revenue of $213.5 million, up 25% on pcp. For the period, the marketplace revenue stood at $180 million, up 26% on pcp, driven by strong trading at TeePublic. For H1FY20, the company reported an EBITDA profit of $4.3 million and free cash flow of $36.6 million.

H1FY20 Result Highlights (Source: Company Reports)

Focus Areas: The company is currently focused on performance marketing and improving the customer experience. Further, the company intends to increase investment in the fast-growing Content Partnerships and licensed fan art segment. It is also focused on accelerating the launch of new products.

Key Risks: Currently, there is uncertainty about the extent and duration of COVID-19 related impacts on the external macroeconomic and operating environment of the company. Further, the company is exposed to the risk related to the security and reliability of the technology infrastructure and processes used for marketplaces. In addition, competitive activity and technological disruption pose a challenge for the company.

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

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

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

Stock Recommendation: Over the last three and six-months period, the stock of RBL has provided a return of 267.37% and 220.18%, respectively. Consequently, the stock is currently trading close to its 52-week high of $3.480. We are of the view that most of the positives are factored in at the current juncture. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price that offers a correction of the lower single-digit (in % terms). For the purpose, we have taken peers like Accent Group Ltd (ASX: AX1), Nick Scali Ltd (ASX: NCK), City Chic Collective Ltd (ASX: CCX). Hence, we suggest investors to wait for a better entry level and have a watch stance on the stock at the current market price of $3.490, up by 17.114% on 7 August 2020, owing to improved Q4 FY20 results.

Myer Holdings Limited

Temporary Closure of Stores Due to COVID-19 Restrictions: Myer Holdings Limited (ASX: MYR) is primarily involved in retailing through department stores across Australia and online. In an update provided on 6 August 2020, the company informed that its second half of FY20 has been severely impacted by COVID-19 pandemic. This was mainly due to the closure of 60 stores and significant reductions in foot traffic. Recently, following the announcement of Stage 4 Restrictions by the Victorian Government on 03 August 2020, the company temporarily closed all metropolitan Melbourne stores on 05 August 2020 for a period of six weeks.

Bank Facility Extended: Despite the unprecedented time of economic and social disruption in retail, the company has inked a binding term sheet with its existing lenders to amend and extend its bank facility until August 2022. The amended facility stands at $340 million which will amortise by $30 million during 2021 and by $60 million during 2022.

H1FY20 Highlights: In the first half of FY20, the company reported total sales of $1.607.9 million and a statutory NPAT of $24.4 million. The operating cash flow (before interest & tax) decreased by $8 million to $179 million in H1FY20, compared to pcp. During the period, the company saw a YoY growth of 25.2% in online sales, which stood at $168.2 million. The online sales growth has continued in the second half as well.

H1FY20 Results (Source: Company Reports)

Key Risks: The COVID-19 pandemic poses a threat to the company as it has caused a temporary closure of stores and a reduction in foot traffic. Further, the company’s competitive position can be impacted by new entrants to the market, existing competitors, changes to consumer demographics and increased online competition.

What to expect: Despite the loss of revenue and earnings as a result of the store closures and reduced foot traffic, the company expects small net cash positive at the end of FY20. This is mainly due to the disciplined cost control, support from the Federal Government via JobKeeper and other payment deferrals, as well as rent relief and deferrals. The company expects to release its FY20 results on 7 September 2020.

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

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

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

Stock Recommendation: On YTD basis, the stock has corrected by 58.76% and in the past six months it has corrected by 54.02% on ASX. Currently, the stock is inclined towards its 52 weeks low price, offering a decent opportunity for accumulation. We have valued the stock using Price to Earnings multiple based illustrative relative valuation method and arrived at a target price with an upside of lower double-digit (in % terms). For the purpose, we have taken peers like Mosaic Brands Ltd (ASX: MOZ), Adairs Ltd (ASX: ADH) and Accent Group Ltd (ASX: AX1). Considering, the company’s recently amended and extended bank facility, disciplined cost control, online sales growth and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.20, up by 5.263% on 7 August 2020.

iCar Asia Limited

June Quarter Update: iCar Asia Limited (ASX: ICQ) is focused on developing and operating leading automotive portals in Malaysia, Indonesia and Thailand. For June 2020 quarter, the company reported net operating cash outflow of $1.14 million, improving 36% compared to Q2 2019, driven by the ongoing successful implementation of cash collection initiatives and cost reduction programs across the Group. For the quarter, the company reported cash receipts of $3.0 million, down by 24% on the previous quarter. Over the period, the Listings and Account volumes witnessed marginal growth compared to Q2 2019. The company was able to achieve positive growth in sales in H12020, with unaudited revenue expected to be at ~$6.3 million, up 4% on pcp. As at 30 June 2020, the company had cash and cash equivalent of $2.2 million with access to additional funds in the form of a $5.0 million debt facility that remains undrawn.

Quarterly Highlights (Source: Company Reports)

Focus Areas: Currently, the company is focused on its core business segments of New Car and Used Car. It intends to launch iCar Suite in all markets with an enhanced dealer product. Further, it plans to launch new transactional formats for used car buyers and dealers. Further, the company is focusing on enhancing the consumer experience, with the launch of user-generated used car reviews across the Group.

Key Risks: The COVID-19 restrictions have brought unprecedented challenges to the company’s key customers and partners in South East Asia. Further, the company’s activities expose it to a variety of risks, including market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk.

What to expect: The outlook for the second half is looking significantly more positive with the easing of business restrictions in Asia’s markets. The company expects demand to recover at its platforms and anticipates a quick rebound to its positive long-term trajectory. Further, it is joining hands with its key customers and dealers to develop strategies to leverage its digital assets to help drive their businesses forward.

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

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

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

Stock Recommendation: In the last six months, the stock of ICQ has corrected by 28.95%, but has increased by 31.71% in the previous three months. Currently, the stock is trading slightly below the average of its 52-week trading range. For 2019, the company’s gross margin stood at 96.1%, higher than the industry median of 58.4%. The company has an asset to equity multiple of 1.30x, lower than the industry median of 1.46x. We have valued the stock using the price to book value multiple based illustrative relative valuation method and arrived at a target price of an upside of lower double-digit (in % terms). For the purpose, we have taken peers like GUD Holdings Ltd (ASX: GUD), AP Eagers Ltd (ASX: APE) and PWR Holdings Ltd (ASX: PWH). Considering, the company’s focus areas, growth in H1 2020 sales numbers, easing Covid-19 restrictions, outlook and valuation, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.270, down by 1.818% on 07 August 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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