Stocks’ Details
 

Premier Investments Limited

Strong Balance Sheet and Distinctive Brands: Premier Investments Limited (ASX: PMV) operates specialty retail fashion chains in Australia, New Zealand, Asia and Europe.

COVID-19 Update: In the wake of rising coronavirus cases in Australia and the subsequent orders of the governments across the country, the company had to temporarily shut down all its stores from 26^th March 2020 to 22^nd April 2020. Similarly, the company has opted for a temporary closure of stores in New Zealand, the UK, and Republic of Ireland. The company updated that it is taking all the necessary measures on an employee and organizational level to cope with the difficult times. The management, however, reflected on a strong balance sheet and excellent brand position, which will support the business in coming out stronger once the crisis is over.

1HFY20 Highlights: For the 26 weeks ended 25^th January 2020, the company reported net profit after tax amounting to $99.6 million, representing an increase of 12.2% on prior corresponding period NPAT of $88.8 million. Retail sales went up by 7.6% to $732.1 million, along with record online sales amounting to $97.2 million, up 28.4% on pcp.


Premier Retail Performance (Source: Company Reports)

Valuation Methodology:Price to Cash Flow Multiple Based Relative Valuation

Price to Book Value Multiple Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of the company corrected by 34.67% in the last three months and is currently trading close to the average of its 52-week trading range of $8.130 - $21.560. The company has successfully delivered on its expectations on the back of continuous focus on product improvement, proper sourcing and marketing to its core customers. Going forward, a strong balance sheet position with distinctive brands will act as key catalysts to drive growth in the business. We have valued the stock using Price to Cash Flow multiple based illustrative relative valuation method and arrived at a target price of higher single-digit upside (in percentage terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $13.24, down 0.898% on 16^th April 2020.

Baby Bunting Group Limited

Sales Up Despite Coronavirus Outbreak: Baby Bunting Group Limited (ASX: BBN) operates Baby Bunting retail stores and the online platform, babybunting.com.au.

COVID-19 Update: Due to the outbreak of coronavirus, the company has taken the necessary measures to ensure a healthy and safe working environment for its employees and customers. In doing so, the company has maintained proper social distancing across its stores, introduced customer number management, ad has encouraged cashless transactions. Being one of the largest retailers of baby goods, the company is a provider of essential services and is required to stand in support of the needs of parents of new borns. The company has seen minimum impact on its supply chain and reported normal functioning across supplier factories and international logistics. During the second half including the period 30^th December 2019 – 22^nd March 2020, the company witnessed total sales growth of 12.4%, with comparable sales growth reported at 6.2%. Online services witnessed double digit growth of 28.6%, as customers opted for online purchase amid the rise in spread of coronavirus. To reduce costs and capital expenditure, the company has deferred around $7 million of capital costs to preserve the available funds.

Shareholder Update: On 1^st April 2020, the company announced that the voting power of Mitsubishi UFJ Financial Group, Inc. increased from 9.02% to 10.25%.

1HFY20 Highlights: During the 26 weeks period to 29^th December 2019, the company generated total sales amounting to $186.4 million, up 8.1% on prior corresponding period sales. Gross margin for the period went up by 223 basis points and stood at 36.9%. Online sales for the period comprised of 11.7% of total sales and increased by 10.5% on the prior corresponding period. During the period, the Board announced an interim fully franked dividend of 4.1 cents per share.


Marketwise Sales Growth (Source: Company Reports)

Outlook: The company updated that its performance has been in line with expectations and a strong balance sheet with unused funds of $27 million will support smooth operations. Due to the uncertainty regarding COVID-19 impact, it has withdrawn the guidance issued for FY20.

Valuation Methodology:Price to Earnings Multiple Based Relative Valuation

Price to Earnings Multiple Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of the company corrected by 22.77% in the last three months and is currently trading close to the average of its 52-week trading range of $1.510 - $4.030. Despite the challenging external environment, the company has continued to deliver growth in sales due to the nature of business. Online sales have paced up due to the safety concerns around physical purchase. We have valued the stock using Price to Earnings multiple based illustrative relative valuation method and arrived at a target price of single-digit upside (in percentage terms). Hence, we give a “Hold” recommendation on the stock at the current market price of $2.55, down 4.851% on 16^th April 2020.

City Chic Collective Limited

Strong Financial Position: City Chic Collective Limited (ASX: CCX) operates in the women’s fashion retail sector in Australia, New Zealand, Germany, USA, and the UK.

COVID-19 Update: The company has temporarily closed its stores in Australia and New Zealand as a response to the government’s directives and is carrying on the business by redeploying its inventory across online channels, giving up non-essential expenditure and reducing the costs associated with stores.

Trading Update: On 19^th March 2020, the company reported year to date comparable sales growth of 8.6% and conveyed the uncertainty regarding prediction of the impact of COVID-19 on future earnings and sales. The company also highlighted that any disruption to production from the Chinese supply partners will impact its stock levels and sales in Q4FY20.

Shareholder Update: On 30^th March 2020, the company announced that the voting power of Spheria Asset Management Pty Ltd increased from 8.72% to 9.76%.

Half Yearly Highlights: For the 26 weeks period to 29^th December 2019, the company reported sales amounting to $104.8 million, up 39% on pcp. The online channel comprised 53% of total sales as compared to 44% during the previous year. Underlying EBITDA stood at $19.1 million.


Revenue by Channel (Source: Company Reports)

Stock Recommendation: The stock of the company corrected by 18.45% in the last three months and is currently trading close to the average of its 52-week trading range of $0.715 - $3.670. The business has a strong financial position with significant headroom in the form of its $35 million debt facility, which expires in February 2023. In 1HFY20, the company reported strong online performance with over 50% of the sales now being executed through the online channel. This can be a key driver for the business at times when people are avoiding physical purchase due to health concerns. However, we are yet to see how the results for H2FY20 pan out amid coronavirus spread. Net Margin of CCX stood at 10.0% in 1HFY20 as compared to the industry median of 3.9%, which reflects that CCX possesses higher capabilities to convert its top-line into the bottom-line against the peer group. ROE of the company stood at 21.4% in 1H FY20 against 9.6% of the industry median. Hence, considering the aforesaid facts along with decent margins, and returns to shareholders, we give a “Buy” recommendation on the stock at the current market price of $2.000, down 9.502% on 16^th April 2020.

Accent Group Limited

H2 Guidance Withdrawn due to Fall in LFL Sales: Accent Group Limited (ASX: AX1) is engaged in the retail and distribution of branded performance and lifestyle footwear across Australia and New Zealand.

COVID-19 Update: As per the advice of the government and health authorities, the company has all its stores for a period of 4 weeks starting from 27^th March 2020. However, the company will continue operating through it 18 websites and wholesale business, while ensuring that its practices are in the best interests of the health of its team members. In another recent announcement, the company withdrew the guidance for profit growth in H2, due to the rising adverse impact from coronavirus outbreak. In the first 11 weeks of the second half, like for like sales went down by 1.2%, which may further decline due to the slowing consumer demand.

1HFY20 Results: During the first half, total sales including The Athletes Foot amounted to $507.9 million, up 10.9% on the prior corresponding period. EBITDA for the period came in at $67.7 million, up 10.5% on pcp. The company ended the period with cash in hand amounting to $44.1 million and declared a fully franked interim dividend of 5.25 cents per share, up 16.7% on the previous year.


Results Summary (Source: Company Reports)

Stock Recommendation: The stock of the company corrected by 43.44% in the last three months and is currently trading below the average of its 52-week trading range of $0.555 - $2.200. In 1HFY20, the company delivered strong sales and earnings growth in a challenging environment and expects the drive further growth on the back of a strong business model and investment in innovation. The stock of AX1 has EV/Sales multiple of 1.2x as compared to the industry median (Specialty Retailers) of 0.8x on TTM basis. AX1 is trading at a P/E multiple of 10.10x against the industry median (Consumer Cyclicals) of 8.2x on TTM basis. Hence, considering the current trading levels and indicative valuations, we have a watch stance on the stock at the current market price of $0.995, down 3.865% on 16^th April 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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