Redbubble Limited

RBL Details
 
Decent Growth in Operating EBITDA Profit: Redbubble Limited (ASX: RBL) owns and operates the Redbubble and TeePublic online marketplace. As on 25June 2020, the market capitalization of the company stood at ~$410.18 Mn. Recently, the company provided a business update, wherein it reported Marketplace Revenue growth of 107% on QTD basis to 22 June 2020. Over the span from 1 July 2019 to 31 May 2020, the company reported an operating EBITDA profit amounting to $11.9 million, reflecting a rise of 101% on YoY basis. Operating expenses for the month of April and May 2020 were 7.7% above the first two months of Q3.During 1HFY20, the company reported Marketplace revenue amounting to $180 million, reflecting the growth of 21% on a constant currency basis.

Marketplace Revenue (Source: Company Reports)

Key Risks: The company’s business is sensitive to numerous risks that may impact its financial and operating results in the future period. These risks include (1) competitive activity and technological disruption, (2) costs risk arising from consolidation in the fulfillment market.

Focus for Future Growth: RB Group is committed to pursue the global opportunity via focused execution with the objective of profitable growth. In addition, the business is focused on the consistent short-term execution as well as delivering on long term growth investments.

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: As at 31 May 2020, the cash balance of the company stood at $56 million. During 1H20, EBITDA margin of the company stood at 2.3% as compared to the industry median of 0.2%. During the span of three and six months, the stock of RBL has moved up by 230.53% and 53.92%, respectively. The stock is inclined towards its 52-week high level of $2.300. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method. For the purpose, we have taken peers such as Baby Bunting Group Ltd (ASX: BBN), Accent Group Ltd (ASX: AX1), Adairs Ltd (ASX: ADH), etc., and arrived at a downside of high single-digit (in percentage terms). Considering the aforesaid facts along with the price movement in the recent past, and valuation, we are of the view that most of the positive factors are discounted at the current levels. We, therefore, give a Sell” recommendation on the stock at the current price of $1.970 per share (up 25.478% on 25 June 2020) and advice to the investors that book profit at higher levels.

 
RBL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
 
 
 
 

Accent Group Limited

AX1 Details
 
Growth in Digital Sales: Accent Group Limited (ASX: AX1) owns and operates numerous footwear and apparel businesses. As on 25 June 2020, the market capitalization of the company stood at ~$737.35 Mn. The company has recently provided a business update and stated that total year to date sales for FY20 stood at $923 million. The company added that digital sales have continued to strengthen with record digital sales in the month of May 2020. It also stated thatAll the Australian and New Zealand stores of the company are open and operational. 

During 1H FY20, the company reported net profit after tax amounting to $35.3 million, reflecting a rise of 9.7% on the prior year. This was due to strong sales growth from digital and new stores, profit growth in The Athletes Foot (TAF), underlying gross margin improvement as well as a focus on the cost of doing business.


Key Metrics (Source: Company Reports)

EBITDA Guidance: For FY20, the company expects to achieve EBITDA growth of 10% over the $108.9 million in FY19 on the back of strong performance in May and June, generated by digital sales, effective cost management, availability of the Australian and New Zealand government wage schemes, and the support of its supplier and landlord partners.

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

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Key Risks: The company is primarily exposed to foreign currency risk, which arises from the purchase of inventory denominated in US dollars. However, AX1 keeps in place the forward exchange contracts to minimize the impact of changes in the Australian Dollar / US Dollar exchange rate on profit and loss.

Stock Recommendation: During 1H FY20, net margin of the company stood at 7.4% as compared to the industry median of 4.0%. This indicates that the company possesses decent capabilities to convert its top-line into the bottom-line as compared to the peer group. We have valued the stock using the P/E multiple based illustrative relative valuation method andarrived at a target price with the upside of low double-digit (in percentage terms).For the purpose, we have taken peers such as Lovisa Holdings Ltd (ASX: LOV), Michael Hill International Ltd (ASX: MHJ) and City Chic Collective Ltd (ASX: CCX). The stock is currently trading slightly above the average of 52-week low and high of $0.555 and $2.200, respectively. Considering the aforesaid facts, current trading levels, growth in digital sales, expected EBITDA growth, and improved net margin, etc., we give a “Hold” recommendation on the stock at the current market price of $1.490 per share, up by 9.559% on 25June 2020.

 
AX1 Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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