Adore Beauty Group Limited

ABY Details

H1FY22 Financial and Business Update: Adore Beauty Group Limited (ASX: ABY) operates as an online retailer providing beauty and personal care products. It works in skincare, Make-up, hair, fragrance, and wellness product categories.

• Recent Media Release: As announced on 23 March 2022, Morgan Stanley & its subsidiaries and Mitsubishi UFJ Financial Group, Inc. became ABY’s initial substantial shareholders with voting power of 7.67% each.
• Top-line Update: ABY recorded revenue growth of 18% PcP to $113.1 million during the period. Active customers surged by 13% PcP and returning customer growth stood 56% PcP. Underpinned by product margin expansion and brand funding, gross profit margin stood at 33.1%, up by 0.6 ppts.
• Bottom-Line Review: EBITDA stood at $3.8 million with a 2-year CAGR of 44% and EBITDA margin of 3.3% falling in line with company guidance. ABY embarked on a solid financial position with a cash balance of $25.1 million as of 31 December 2021.

Analysis by Kalkine Group

Key Risks and Challenges

Changing consumer behavior and any structural shift may significantly affect the top-line as witnessed during COVID-19. Online platforms are incredibly competitive and hence may result in price wars in the case of undifferentiated products.

Outlook

• Company Guidance: ABY expects an overall positive tending momentum with revenue growth of 14% PcP over the first six weeks of H2FY22. The company affirmed its targets of clocking an EBITDA margin of 2% to 4% in short to medium term.
• Key focus areas of the business: This includes scaling native iOS and Android apps, growing loyalty programs, expansion in marketing channels, growth in adjacent categories, and launching the first Private Label skincare brand by Q4FY22.

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 company is trading below its 52-week low-high average of $1.945 - $5.300, respectively. The stock of ABY has been corrected by ~56.29% in the past six months, making a decent opportunity to accumulate. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average EV/Sales multiple, considering the COVID-19 uncertainties and lower net margins. For the purpose of valuation, peers such as Temple & Webster Group Ltd (ASX: TPW), Booktopia Group Ltd (ASX: BKG), and Step One Clothing Ltd (ASX: STP) have been considered. Considering the expected upside in valuation, rising EBITDA and active customers, decent long-term outlook, growing topline, current trading level and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $2.040, down by ~1.924%, as on 31 March 2022. 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.

ABY Daily Technical Chart, Data Source: REFINITIV 

Carbon Revolution Limited

CBR Details

Latest Updates: Carbon Revolution Limited (ASX: CBR) is engaged in designing, manufacturing, and marketing single-piece carbon fibre wheels for the automotive industry.

• On 3 March 2022, CBR issued ~129,748 shares due to the exercise or conversion of options under an employee incentive scheme.
• Recently, Comet Asia Holdings II Pte. Ltd., Comet Asia Holdings I Pte. Ltd., KKR Asia III Fund Investments Pte. Ltd. and KKR Asian Fund III L.P. ceased to be a substantial holder in CBR. Besides, the company has been removed from All Ordinaries, effective from 21 March 2022.

Insights of 1HFY22: The company’s 1HFY22 results have been backed by rising sales by Ford for the GT500. During the period, General Motors rolled out the Chevrolet C8 Corvette Z06 and Z07, presenting CBR’s carbon fibre wheels.

Financial Summary (Source: Analysis by Kalkine Group)

Key Risks: CBR’s operational and financial performance could be impacted by a growing number of peers and technological shifts in the industry. It risks changes in production due to the demand and supply dynamics.

Outlook: For FY22, CBR focuses on enhancing sales growth via new production programs, realising operational efficiencies, advancing the Phase 1 Mega-line project, and declining the cost of sales.

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 is trading below its 52-week average price level band of 0.565 - $2.380. The stock has been corrected by ~36.71% in the past three months. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at some discount to its peers’ average EV/Sales multiple, considering the continuing losses in business and negative margins, etc. For valuation purpose, a few peers such as Supply Network Ltd (ASX: SNL), ARB Corp Ltd (ASX: ARB), Apollo Tourism & Leisure Ltd (ASX: ATL), and others have been considered. Considering the expected upside in valuation, rising wheel sales, growing underlying revenue, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.655, down by ~6.429%, as on 31 March 2022.

Markets are currently trading in a highly volatile zone due to certain macro-economic issues and prevailing geopolitical tensions. 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 decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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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