City Chic Collective Limited

CCX Details

Completed Acquisition of UK-Based Evans: City Chic Collective Limited (ASX: CCX) is a multi-channel retailer of plus size women’s clothing, accessories, and footwear. Its portfolio of brands includes City Chic, Avenue, Evans, CCX, Hips & Curves and Fox & Royal, catering to different markets in the US, UK, ANZ and NZ. As on 9^th January 2021, the market capitalisation of the company stood at ~$890.02 million. On 23 December 2020, the company announced that it has completed the acquisition of the UK-based brand Evans. CCX has purchased the ecommerce and wholesale businesses (exclusive of stores & franchise) under a binding asset purchase agreement for a cash sum of $41 million from Evans Retail Limited and few other companies within the Arcadia Group. The acquisition is expected to be earnings accretive in the first full year. As of 30 November 2020, the company had cash of $121.4 million and a $40 million undrawn finance facility.

Unfruitful Bid at Court -Run Auction for Catherines’ e-commerce Assets: The company recently updated on the results of the auction process held in September 2020 in the US for the e-commerce assets of Catherines for which it was nominated as the Stalking Horse Bidder in July. CCX felt that the final bid at $55.5 million was over-valued than the underlying assets and not meritorious to be pursued in the interests of the shareholders’ value.

FY20 Results & COVID-19 Learnings: The company registered an increase of 31% in revenue to $194.5 million in FY20. This was due to a 57% YoY increase in online sales in Australia and a 179% YoY growth of sales in the Northern Hemisphere. Its underlying EBITDA grew by 6.6% YoY to $26.5 million with a 13.6% EBITDA margin. During the year, the company’s major focus was to diversify sources of production, mitigate the risk of store closures, and be more prudent and flexible in operations.

FY20 Financial Highlights (Source: Company Reports)

Outlook: CCX plans to execute the Transaction Services Agreement until the end of April 2021 to fully integrate the Evans business. The multi-retailer aims to optimise and expand US customer base, drive sales growth through category and segment expansion in ANZ, launch selected stores in ANZ in FY21. Building team bench strength for profitable growth will continue to remain a priority for CCX in FY21.  

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The stock of CCX gave a positive return of 27.09% in the past three months and a positive return of 15.15% in the past six months. The stock is inclined towards its 52-week high of $4.08. The stock of CCX has a support level of ~$3.683 and a resistance level of ~$4.056. We have valued the stock using an enterprise value to sales multiple based illustrative relative valuation method and have arrived at a target price of low double-digit (in % terms). For the purpose, we have taken peers like Lovisa Holdings Limited (ASX: LOV), Mosaic Brands Limited (ASX: MOZ), Accent Group (ASX: AX1) and others. Considering the stock’s decent returns in the past few months, high trading levels, and valuation, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $3.8, down by 1.333% on 8^th January 2021.

CCX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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