Temple & Webster Group Limited

TPW Details

AGM Highlights: Temple & Webster Group Limited (ASX: TPW) is an online retailer of housewares and furniture with over ~200,000 products for sale via suppliers. It has multiple subsidiaries - Milan Direct UK Pty Limited, Temple & Webster Pty Limited, Milan Direct Pty Limited, etc.

• The company has an estimated ~$16 billion of core furniture & homewares market with less than ~10% online penetration. It plans to increase online sales on the back of growing structural & demographic shifts, COVID-19, and spending by millennials. A strong housing market and lower spending on travel are also facilitating sectoral growth.
• The total addressable market (TAM) for commercial homewares & furniture space and the home improvement markets are also expected to considerably grow to over ~$30 billion.

FY21 & Trading Update:

• In FY21, the revenue from its ‘Private Label’ (owned inventory program) increased from ~19% to ~26%.
• It reported positive customer feedback and ratings of 4.8 stars (out of 5) on its newly launched apps of - iOS and Android Apps in FY21. Consequently, it is witnessing higher customer engagement & repeat purchases.
• The company reported ~56% YoY growth in revenue from 1^st July to 15^th Oct 2021.
  

Liquidity & Lease Liabilities Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces technological changes, structural shifts, intense competition, and lower discretionary spending by consumers.

Outlook:

• As part of its re-investment strategy and aim to build the go-to-brand for the shoppers, TPW plans to invest across business areas of technology, marketing, data, and logistics.
• It expects an EBITDA level of ~2-4% in the near to mid-term to make these investments and drive benefits of scale. However, 1HFY22 EBITDA is expected to be higher than the near-mid-term EBITDA level.

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 ~18.39% in the past three months and a negative return of ~1.56% in the past six months. The stock is currently trading slightly below the 52-weeks’ average price level band of $8.010 - $15.000. The stock has been valued using the Enterprise Value to Sales mtuiple-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’ average EV/Sales multiple, considering an uptick in its debt-to-equity ratio, expected re-investment across business areas, and the risk of dynamic consumer behaviour. For this purpose of valuation, a few peers like City Chic Collective Limited (ASX: CCX), Lovisa Holdings Limited (ASX: LOV), Harvey Norman Holdings Limited (ASX: HVN) have been considered. Considering the current trading levels, revenue growth on a YTD22 basis, indicative upside in valuation, strong accelerating tailwinds, decent outlook, and associated key business risks, we give a ‘Buy’ rating on the stock at the current market price of $10.05, as of 7 January 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

TPW Daily Technical Chart, Data Source: REFINITIV

Donaco International Limited

DNA Details

Last Loan Instalment Paid: Donaco International Limited (ASX: DNA) runs operating leisure and entertainment businesses in the APAC (Asia Pacific) region. It runs casino operations in Vietnam (Aristo International Hotel), Cambodia (Star Vegas Resort and Club), and corporate operations. On 30 December 2021, DNA fully repaid the final instalment of ~US$ $1.8 million borrowed under the debt facility from Mega International Commercial Bank Co Ltd (its key lender).

Q1FY22 (30 September 2021) & FY21 Key Takeaways:

• DNA maintains prudent cost control as the COVID-19 situation continues in Cambodia and Vietnam. As a result, the operating expenses for Q1FY22 fell to ~A$1.08 million versus ~A$1.28 million in Q4FY21 (June Quarter 2021).
• Due to the government-mandated protocols, DNA has closed the Star Vegas casino operations in Cambodia temporarily since 27 April 2021. It is running the Aristo casino in Vietnam on a limited basis since May 2020.
• It reported $1.337 million in cash receipts and held ~$5.17 million cash and cash equivalents as of 30 September 2021.
• The total liabilities were reduced from ~$73.46 million in FY21 to ~$36.38 million in FY20.
• The company incurred a cash burn of ~US$380,408 per month in Q1FY22 which was much improved than the targeted range of ~US $800,000 - $900,000 set in Q4FY21.

Reduction in Opex & Corporate Expenses, Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of regulatory changes, COVID-19 protocols, shutdowns in its key markets, and negative forex movements. 

Outlook: DNA plans to ensure a strong balance sheet and observe disciplined cost management. It further aims to diversify clientele from the local areas and region in FY22 to grow revenue and customer visitation.

Stock Recommendation: The stock of DNA gave a positive return of ~5.555% in the past three months and a negative return of ~13.63% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.033 - $0.075. On a TTM basis, the stock of DNA is trading at a price to book value multiple of 0.3x lower than the industry (Hotels & Entertainment Services) median of 2.0x, thus seems undervalued. Considering the current trading levels, reduced total liabilities, rise in gross margin, improved net margins in FY21, cost control focus and clientele diversification plans in FY22, valuation on a TTM basis, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.038, as of 7 January 2022.

DNA 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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