Temple & Webster Group Ltd

TPW Details

Recent Update: Temple & Webster Group Ltd (ASX: TPW) is engaged in the online retailing of furniture and homewares. In a recent update, the company announced that Michael Egan, has retired from the post of Company Secretary after serving the company for almost seven years. Mr. Egan was replaced by Lisa Jones, effective immediately.

A Quick Look at 1HFY22 Results:

• During 1HFY22, the company witnessed a record growth of 46% in revenue to $235.4 million, depicting the 6th consecutive quarter of revenue per active customer growth.
• Active customers during the period came in at 906,000, indicating a rise of 34% on pcp basis. EBITDA margin came ahead of the targeted range of 2-4% and stood at 5.1% in 1HFY22.
• The company has a healthy balance sheet, with a cash balance of $105.5 million, up from $97.5 million reported at the end of 30 June 2021.

Key Financial Highlights (Source: Analysis by Kalkine Group)

Key Risks: The company’s operational and financial performance could be impacted by the rising market share from competitors and changing consumer sentiments. TPW is exposed to a risk arising from the uncertainties arising from the COVID-19 pandemic.

Outlook: In 2HFY22, the company’s revenues went up 26% on pcp basis for the period 1 January 2022 to 6 February 20222. Looking forward, the company would continue its reinvestment strategy, investing in growth areas of the business to improve its online market leadership position.

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 is trading below its 52-week low-high average of $5.84 - $15.00, respectively. The stock has been corrected by ~51.89% in the past six 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 a slight discount to its peers, considering the COVID-19 disruptions, a decline in NPAT, and high debt to equity ratio. For the purpose of valuation, peers such as Kogan.com Ltd (ASX: KGN), Adore Beauty Group Ltd (ASX: ABY), Booktopia Group Ltd (ASX: BKG), and others have been considered. Considering the expected upside in valuation, growing revenues, a strong start to FY22, 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 $6.230, down by ~2.352% as on 20 April 2022.

TPW Daily Technical Chart, Data Source: REFINITIV 

Adore Beauty Group Limited

ABY Details

Spotlight on 1HFY22 Results: Adore Beauty Group Limited (ASX: ABY) is engaged in the online retailing of third-party beauty and personal care products in Australia and New Zealand.

• Impressive Customer Base: The company witnessed robust customer retention with 56% growth in returning customers. The company saw a rise in active customers, rising ~13% year over year. It is worth mentioning that ABY witnessed a CAGR of 58% for two years in returning customers. ABY continues to gain from the ongoing structural shift to online.
• Healthy Balance Sheet: The company has a strong balance sheet and remains well-financed with a cash balance of $25.1 million and a debt-free financial position, delivering flexibility to sustain a growing business.
• Key Developments: ABY remains well equipped to build its own marketing channels & community and expand its loyalty program, including over 95% of the top customer tier.

Customers Highlights (Analysis by Kalkine Group)

Key Risks: The company’s financial performance might get impacted by the change in customer preference and supplier concentration risk. Online platforms are extremely competitive and hence may result in price conflicts in the case of undifferentiated products.

Outlook: ABY expects to retain a 2% to 4% EBITDA margin during the short to medium term while adhering to reinvestment plans for market penetration. The company remains on track to implement its growth strategy to bolster its online market leadership, and ramp up its native mobile app, loyalty program, and range extension. 

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 the company has been corrected by ~50.82% in the past three-months. Currently, the stock is trading below the average of its 52-week high and low levels of $5.30 and $1.74, respectively. The stock has been valued using an EV/Sales multiple-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 as compared to its peers, considering rising expenditure, COVID-19 led uncertainties, stiff competition, etc. For the purpose of valuation, peers such as Temple & Webster Group Ltd (ASX: TPW), Booktopia Group Ltd (ASX: BKG), Kogan.com Ltd (ASX: KGN), and others have been considered. Considering the rise in top-line, decent liquidity position, positive outlook, robust customer base, current trading levels, indicative upside in the valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $1.750, down by ~3.048% as on 20 April 2022.

ABY 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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