Universal Store Holdings Limited

UNI Details

Universal Store Holdings Limited (ASX: UNI) operates as a fashion retailer providing clothing, footwear, and accessories for men and women in Australia. Its brands include Luck & Trouble, L&T, Perfect Stranger, Common Need, and Token.

H1FY22 Result Highlights:

• Mobility restrictions severally disrupted the store operations in NSW, VIC, and the ACT with 3,192 lost trading days in H1FY22.
• UNI witnessed a 8.2% fall in sales in H1FY22 to $108.3 million. But online sales surged 499% YoY and it made up 19.3% of total sales.
• It had opened nine new stores with total stores reaching 76.
• Underlying EBITDA dived 35% to $21.5 million attributed to a spurt in shipping & delivery costs and increased investments in digital marketing, following store closure-related costs.
• Its underlying NPAT dipped 33.7% to $13.8 million. During the period, the board decided to repay ~$3 million towards the JobKeeper program.
• UNI had adequate liquidity with a cash balance of $67.7 million as of December 31, 2021, as compared to $54.3 million last year comparable period. This was driven by lower cash requirements for inventories and a cut down in overall capex spend. Net cash generation turned positive to $15.4 million in H1FY22.
• Borrowings remained broadly unchanged at $14.8 million.
• The board declared a fully franked interim dividend of 11 cps to be paid on March 28, 2022.

Sales Trend by Channel (Analysis by Kalkine Group)

Key Risks: An increasing virus spread may invoke lockdown fears and store closures may severely hinder the operations of UNI. Supply chain disruptions and increased freight costs may limit margin expansion. Change in buying behaviour is influenced by unemployment rates, disposable income, and interest rate.

Outlook: UNI is expecting to open three new stores in the upcoming six months period. It has witnessed a good start of the year 2022 with sales for the first eight weeks went up 5% YoY and online sales were up 28.8% in H2 year-to-date.

Valuation Methodology: P/E 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 UNI has been corrected by ~26.84% in the past three months. The stock is trading below to its average of the 52-weeks’ low-high price band of $5.180-$8.560. The stock has been valued using the P/E-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers, considering the drop in underlying NPAT in H1FY22. For this purpose of valuation, a few peers like Accent Group Ltd. (ASX: AX1), City Chic Collective Ltd. (ASX: CCX), Lovisa Holdings Ltd. (ASX: LOV), and others have been considered. Considering the digital investment and robust growth in the online sales channel, adequate liquidity, high ROE in FY21 over the industry, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $5.630 as of 11 March 2022, 03:05 PM (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

UNI Weekly Technical Chart, Data Source: REFINITIV  

Carbon Revolution Limited

CBR Details

Carbon Revolution Limited (ASX: CBR) is engaged in the manufacturing of carbon fiber wheels for automotive, aerospace, and commercial applications. It caters to automotive Original Equipment Manufacturers (OEMs) across the globe.

H1FY22 Result Spotlight:

• It had onboarded three new programs totalling 15 active programs during the period that includes 4 electric vehicles.
• Revenue grew 2.3% to $17.6 million in H1FY22. Wheels sold showcased 1.6% to 6,497 units.
• The company’s carbon fibre wheels were featured in the launch of the Chevrolet C8 Corvette Z06 and Z07.
• Supply chain-related disruptions caused its cost of goods sold to increase. EBITDA dived 62.4% to a loss of $14.4 million due to increased investment in R&D and launch team.
• CBR posted a net loss of $21.8 million in H1FY22 as compared to a net loss of $14.8 million in H1FY21.
• The company’s Mega-line infrastructure design got finalized and construction has begun.
• It had posted net cash of $33.2 million as of December 31, 2021 as compared to $70.9 million in PcP. Sizeable outflows experienced towards working capital and PP&E for Mega-line and tooling investments.
• Its working capital debt facility has been extended by $15.5 million with a new $8 million supply chain facility.

Key Financial Highlights (Analysis by Kalkine Group)

Key Risks: Delay in Mega-line expansion may result in cost overruns in the production line. Lockdown fears may lead to inventory re-building and associated investments.  Semiconductor shortage may halt automobile production volume and may affect wheels offtake by global OEMs.

Outlook: Production equipment installation is likely to commence at the new Mega-line. CBR spent about $6.5 million in building that facility. First wheel production from the Mega-line to kick in by second half of 2022. CBR may witness substantial pull from Ferrari programs given the increase in production.

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 CBR has been corrected by ~34.0% in the past three months. The stock is approaching its 52-week low price of $0.645. The stock has been valued using the EV/Sales-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers, considering the active programs in the rapidly evolving electric vehicle space. For this purpose of valuation, a few peers like GUD Holdings Ltd. (ASX: GUD), Bapcor Ltd. (ASX: BAP), Pwr Holdings Ltd. (ASX: PWH), others have been considered. Considering the production plans at the Mega-line facility, ramp-up plans with Ferrari, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.665 as of 11 March 2022, 03:05 PM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

CBR Daily Technical Chart, Data Source: REFINITIV 

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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