Temple & Webster Group Ltd

TPW Details

Temple & Webster Group Ltd (ASX: TPW) is engaged in the retailing of furniture and homewares in Australia.

FY21 Key Results:

• Increase in Revenue: In FY21, the company’s total revenues increased grew by ~85% year over year to $326.3 million. The growth was achieved on the back of decent performance across all categories, and robust growth in new and repeat customers and average order values.
• The Rise in EBITDA: TPW reported an EBITDA of $20.5 million during the period, reflecting an increase of ~141% on the pcp.
• Strong Customer base: Revenue per active customer in FY21 went up ~12% YoY in FY21, owing to customers repeating more frequently and their spending power.
• Product Launch: In FY21, the company unveiled iOS and Android apps with around 4,000 reviews and an average rating of 4.8 (out of 5).
• Cash Rich Company: TPW ended the period with a comfortable cash position of $97.5 million with no debt on the balance sheet.

Active Customers Highlights (Source: Analysis by Kalkine Group)

Trading Update: The company continued to deliver decent performance in Q4FY21 and entered FY22 on a strong note. In Q4, TPW reported an increase in revenue by ~26% on the pcp. Revenue for the period 1 July 2021 to 24 July 2021 grew by over 39% on the pcp.

Key Risks:

• The company's line of business and operations depends on the smooth functioning of its technological platforms. Any impact on it could pose a short-term profitability risk to the earnings.
• Further, stiff competition from peers and loss of key customers remains other potential headwinds.

Outlook: The company remains on track to invest higher in the growth areas of its business, to strengthen its online market leadership position. In the long term, it expects higher levels of profitability owing to increased benefits of scale in its operations along with strong housing market growth. 

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: As per ASX, the stock of TPW is trading above its average 52-weeks levels of $7.51-$14.050. The stock of TPW gave a positive return of ~24.85% in the past nine months and a positive return of ~58.22% in the past one year. On the technical front, the stock has a support level of $10.734 and a resistance level of $14.21. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price with a correction of low single-digit (in % terms). We believe that the company can trade at a slight premium to its peer median EV/Sales (NTM trading multiple), considering the impressive growth in top-line, robust customer base, strong balance sheet, and optimistic outlook. For this purpose, we have taken peers such as Cettire Ltd (ASX: CTT), Adore Beauty Group Ltd (ASX: ABY), Lovisa Holdings Ltd (ASX: LOV), to name a few. Considering the current trading levels, steep price movement in the past months, and correction in valuation, we suggest investors to book profit on the stock and give a ‘Sell’ rating at the current market price of $13.330, as on July 27, 2021, 11:58 AM (GMT+10), Sydney, Eastern Australia.  

Technical Overview:

After a long consolidation between $9.11-$11.10, TPW prices have witnessed a fourth consecutive weekly rally. Meanwhile, prices are now getting a stiff resistance of the falling trendline at today's high i.e., $13.33. There is a negative RSI divergence with prices that can be visible on a monthly chart that further indicates that the prices could get a downward correction in the coming trading sessions. Weekly and monthly volumes are also decreasing with an increase in prices further giving a hint that investors are pulling out their investments from the stock. Daily RSI (14-period) is hovering at the extreme overbought region at ~80 that indicates profit booking might come at higher levels any time soon. The immediate resistance level is $13.90, while the immediate support level is $11.10.  

TPW Daily Technical Chart, Data Source: REFINITIV 

Note:  The green color line in the chart depicts RSI (14-period) and the purple color line showing 21-period simple moving average. 

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.

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