Mosaic Brands Limited

MOZ Details

Business Update: Mosaic Brands Limited (ASX: MOZ) is engaged in the operation of retail clothing brands within the Australia and New Zealand geographies. As per a recent update, the trading halt which was placed for the company’s securities was lifted on 6 September 2021, following the announcement of its capital raising. The company plans to issue convertible notes for a capital raising of ~$32 million. The pro-forma cash post the offer will be at ~$88.1 million as of 27 June 2021.

FY21 Performance Update:

• The company reported EBITDA of $48 million (excl. EziBuy) in FY21, compared to $45 million in the pcp.
• Group margin stood at 59.4% in FY21.
• Net cash improved to $25.1 million in FY21, compared to $3.6 million in the prior corresponding year.
• It reported record online sales of ~$111 million during the year, reflecting an increase of ~19% on the prior year.

Trend in Revenue (Source: Analysis by Kalkine Group)

Key Risks: The company has been impacted by the onset of the COVID-19 pandemic with store closures and lockdown restrictions. The uncertainty in the business environment still prevails with the prevalence of the pandemic in its key markets.

Outlook: The company has reported acceleration in online sales and delivered ~23% growth in the first eight weeks of FY22. However, the comparable store sales were down by ~8% due to the ongoing volatility of the COVID-19 impact. The company expects to witness growth in its activities going forward with curbs in lockdown restrictions.

Valuation Methodology: EV/EBITDA 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 MOZ is trading below its average 52-weeks' levels of $0.380-$1.190. The stock of MOZ gave a positive return of ~29.67% in the past one week and a positive return of ~16.831% in the past one year. On a technical analysis front, the stock of MOZ has a support level of ~$0.4550 and a resistance level of ~$0.66. The stock has been valued using an EV/EBITDA multiple-based illustrative relative valuation and arrived at a target price with a correction of low single digit (in % terms). The company can trade at some discount to its peers’ median EV/EBITDA (NTM trading multiple), considering the decrease in comparable store sales due to COVID-19 impact and risk of further lockdown restrictions. For this purpose, few peers such as Myer Holdings Ltd (ASX: MYR), Michael Hill International Ltd (ASX: MHJ), Dusk Group Ltd (ASX: DSK) have been considered. Considering the indicative valuation, recent rally in the stock price, the uncertainty led by COVID-19 impact, decrease in comparable store sales and the key risks associated with the business, we recommend a 'Sell' rating on the stock at the current market price of $0.625, as on 8 September 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

MOZ Daily Technical Chart, Data Source: REFINITIV

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 for 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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