Temple & Webster Group Limited

TPW Details

FY21 Financial Performance: Temple & Webster Group Limited (ASX: TPW) is an online retailer of homewares and furniture in Australia. The company operates on a drop-shipping model whereby products are shipped directly to the end user by the suppliers, reducing the need of holding inventory.

• Top Line Performance: In FY21, revenue inclined to $326.3 million, up by 85% YoY. TPW’s online presence and increase website traffic for pure-play retailers translated to 3.2 million subscribers and 778k active customers.
• Operating Metrics: Gross margin increased to 45.4% relative to 44.6% prior year due to strong growth in private label which currently represents 26% of sales. EBITDA inclined to $20.5 million, up by 141% YoY as fixed costs as a proportion of revenue declined to 7.9% from 10.0% in prior period and improved gross margins. NPAT stood at $14.0 million, which surged by 165% on a normalised basis.
• Shareholders’ Return and Financial Position: The 12-month marketing ROI remains resilient at 2.3x after considerable investment in TV and brand building. Contribution margin, post one-off distribution costs, stood at 14.6%. Balance sheet remains strong with $97.5 million in cash position and no debt.

Top-Line and Profitability, Analysis by Kalkine Group

Key Risks and Challenges

• TPW’s line of business depends on smooth function of its digital platforms. Any technical glitch can harm company reputation and cause high financial losses.
• Increased competition from traditional retail platforms shall gear up as containment measures lift.

Outlook

TPW’s core B2C furniture and homewares segment is an ~$16 billion market, which is undergoing a structural shift. TPW is reinvesting cash flows in marketing, digital development, customer experience and product range. TPW is on track for better unit economics via increased scale delivering cost advantages, product marketing, sourcing, and logistics.

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 TPW gave a negative return of ~9.76% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $8.010 - $15.000. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at a slight premium to its peers’ average EV/Sales multiple, considering improving unit economics and significant operations on resilient digital platforms. For valuation, few peers like Redbubble Ltd (ASX: RBL), Kogan.com Ltd (ASX: KGN), Mydeal.Com Au Ltd (ASX: MYD) have been considered. Given the current trading levels, prudent online presence, increased website traffic, exponential uptick in top-line, and upside indicated by valuation, we give a “Buy” recommendation on the stock at the current market price of $10.94, as of 09 November 2021, 10:53 AM (GMT+10), Sydney, Eastern Australia.

TPW Daily Technical Chart, Data Source: REFINITIV

Premier Investments Limited

PMV Details

FY21 Financial Performance: Premier Investments Limited (ASX: PMV) is involved in the operations of specialty retail fashion chain within the fashion markets of Australia, New Zealand, Europe and Asia.

• Top-Line Performance: Premier Retail Global sales clocked $1.4 billion, up 18.7% YoY. Record Peter Alexander sales clocked $388.2 million, considerably up by 34.7%. Online sales contributed 20.8% of Global FY21 sales and recorded $300.7 million, substantially up by 36.4%. Apparel Brands generated $841.6 million revenue, up by 25.3%.
• Bottom-Line Performance: Gross profits for the year stood at $927.9 million, up 25.1% YoY with gross margins expanding by 331bps. Premier Retail EBIT registered $351.9 million, up by 88% YoY, primarily driven by robust sales and strong cost control measures.
• Cashflow and Financial Position: Cash flow from operating activities slipped to $383.52 million relative to $483.582 million, primarily driven by reduced depreciation expenses and unfavorable movements in inventory. Cash balance as of 30 June 2021 stood at $523.36 million. Net debt to Equity ratio as of 30 June 2021 stands at -24.6%.

Source: Company Report, Analysis by Kalkine Group

Key Risks and Challenges

• COVID-19 Impact: In FY21, PMV lost 50,581 retail store trading days as government mandated temporary closure of stores across Australia, New Zealand, Asia and Europe.
• Lack of Online Presence: High competition from pure-play online competitors pose significant impact on PMV’s online presence.

Outlook

PMV strategies continued deliver of better merchants and better products. PMV focuses on high quality inventory to deliver full-priced sales with reduced promotional activity. Recent downturn due to COVID-19 has kept cost-saving measures to carry on for profitability.

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 PMV gave a positive return of ~41.941% in the past one year. The stock has made a new 52-week high of 32.620. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of high-single digit (in percentage terms). The stock has a resistance of $33.18 and support level of $30.52. The company might trade at a slight premium to its peers’ average EV/Sales multiple, considering the strong fundamentals of the company. For valuation, few peers like City Chic Collective Ltd (ASX: CCX), Nick Scali Ltd (ASX: NCK), Universal Store Holdings Ltd (ASX: UNI) have been considered. Considering pandemic risks, changing consumer preferences, high exposure to promotional activities, high competition from pure-play retailers, valuation indicating downside, recent rally in stock price and current trading levels, we suggest investors to book profits and give a “Sell” recommendation on the stock at the market price of $32.620, as of 09 November 2021, at 11:36 AM (GMT+10), Sydney, Eastern Australia.

PMV Daily Technical Chart, Data Source: REFINITIV

Note: The purple line reflects the RSI (14-day period)

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

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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 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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