Toys“R”Us ANZ Limited

TOY Details

Increased Online Focus: Toys“R”Us ANZ Limited (ASX: TOY), previously known as Fantastic Limited operates as a retailer of toys, clothing and baby products in Australia. Some of its brands include Toy“R”Us, Babies“R”Us and Hobby Warehouse. TOY has announced the sale of Chill Factor business to Character Promotions Limited on July 5, 2021, for US $1.31 million (A$1.74 million). Chill Factor is a squeeze cup slushy maker that helps to convert liquids into ice in a few seconds. Chill Factor generated revenues of ~A$0.44 million during the half-year ended 31 January 2021 and accounted for ~2.7% of the overall revenues of TOY. The sale helps TOY to move towards digital-first-direct-to-shopper retailing. The transaction is expected to be close at the end of the financial year on July 31, 2021.

Business Realignment: TOY continues to strengthen its position to become a full e-commerce business. It had announced the sale of its confectionery division in January 2021. It had closed various stores overseas and third-party storage services and focused on streamlining operations. The company launched Babies “R” US website in recent times.

Financial Highlights for H1 FY21: Revenue for the six months period ending January 2021 improved by 14.9% YoY to A$16.25 million. It had acquired Mittoni Pty, Hobby Warehouse Pty, and Toys R Us Licensee Pty Ltd. during the period to enhance distribution reach in Australia and New Zealand markets. EBITDA turned positive to $0.995 million in H1 FY21 as compared to a loss of A$3.66 million in pcp. It had posted a net profit of $1.02 million against a net loss of A$4.19 million in the previous corresponding period. TOY closed the period with a cash balance of A$20.47 million as of January 2021.

Financial Performance (Source: Company Reports)

Key Risks: TOY is exposed to risk in royalty and product licenses. The company must pay royalties relating to the distribution of licensed products. The online marketplace is highly competitive, and the demand for price-sensitive products are often influenced by household spending patterns, unemployment rate, and disposable income levels.

Outlook: The company is expecting the addressable market for Babies“R”us products to be A$2.5 billion in Australia. The re-launch site will offer thousands of products online during the second half of CY2021. TOY to increase Hobby Warehouse products with an aim to capture ~3-4% of the addressable market of over A$1 billion. The company intended to increase marketing spend to increase logistics capacity by H2 FY21.

Stock Recommendation: The stock of TOY gave a return of ~+70.73% in the last one month and a return of ~+27.27% in the last three months. The stock is trading above the average of the 52-week low price of $0.022 and the 52-week high price of $0.195. On a TTM basis, the stock of TOY is trading at an EV/Sales multiple of 3.3x compared to the Industry Median of 2.1x (Leisure Products), indicating overvaluation. Considering the run-up in stock prices in the recent periods, technical levels, and risk of highly discretionary demand, we suggest investors to book profit and give a “Sell” rating on the stock at the price of A$0.145 as of 3.22 PM (GMT+10) Sydney, Eastern Australia Time as of 5^th July 2021.

Technical Overview:

TOY’s prices are trading in a sharp uptrend for the past 1 month and gained ~66.67% during the tenure. Prices recently tested the major resistance level of $0.145, indicating the possibility of a downside correction. On the weekly chart, the leading indicator RSI (14-period) is entered in an overbought zone (~70.98 levels), further supporting a downside stance. However, the trend-following indicator 21-period SMA sustaining below the current market price and acting as an important support level for the stock. Now an immediate resistance for the stock appears at $0.145 level while support is at $0.105 level.

TOY Weekly Technical Chart, Data Source: REFINITIV

Note: The purple color line in the chart represents RSI (14-period), while the green color line indicates 21-period SMA.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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