Adore Beauty Group Limited

ABY Details

Resurgence in Online Sales: Adore Beauty Group Limited (ASX: ABY) operates online marketplace for beauty and personal care products in Australia. Its product categories include skincare, make up, hair care, fragrance, and wellness, among others.

Q3 FY21 Trading Update:

• Witnessed strong offtake in core brands covering skincare and haircare categories. Revenue soared 47% reaching $39.4 million in Q3 FY21 over the preceding quarter.
• ABY is expected to expand its market leadership position in the online retailing with disciplined investments in the mobile app, loyalty programs, and pursue adjacent expansion opportunities.
• Active customers surged 69% YoY reaching 687k in the nine months ending March 2021 as compared to the last year.

Financial Highlights for H1 FY21:

• Active customers posted a strong growth of 82% to reach 777k in H1 FY21. Increase in sales was led by strong customer retention at 65.5% (vs. 61.3% in FY20).
• Clocked revenues of $96.2 million which is 85% over the previous year aided by strength in website users reaching at 23,000 users.
• Gross profit margin stood at 32.5% over 31.1% in pcp. Similarly, EBITDA margin improved to 5.4%, up from 3.5% posted last year. Investment brand awareness and supplier terms contributed to the rise in margins.
• It had closed the period with a cash balance of $25.9 million and nil debt outstanding.

Active Plans Highlights (Analysis by Kalkine Group)

Key Risks: ABY is exposed to changing customer preferences, risk in demographic shift, and is exposed to supplier concentration risks.

Outlook:

• ABY has confirmed that its full-year FY21 revenue is expected to grow in the range of 43-47%.
• The company will continue to pursue investments in marketing and ad spend to spur the sales. It will invest in private labelling and new sales programs for online reach.

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

Stock Recommendation: The stock of ABY posted 3-month returns of ~8.26%. It is trading lower than the average of the 52-week low price of $3.310 and 52-week high price of $7.420. We have valued the stock using the EV/Sales based illustrative relative valuation method and have arrived at a target price with a correction of single digit (in % terms). We believe that the company can trade at a slight premium than its peer mean, considering the uptick in Q3 FY21 sales and increase in active customers. For this purpose, we have taken peers such as Breville Group Ltd (ASX: BGR), Booktopia Group Ltd. (ASX: BKG), Temple & Webster Group Ltd. (ASX: TPW), among others. Considering the current trading levels, possibility of correction as indicated by the valuation, technical levels, and inherent investment risks, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $5.280, as on as on 30 July 2021, 2.00 PM (GMT+10), Sydney, Eastern Australia.

Technical Overview:

On the daily chart, ABY stock prices are hovering near its horizontal trend line resistance zone at $5.32 and prices are sustaining below the trend line. The leading indicator RSI (14-period) is trading at ~66.33 near an oversold zone. A crucial support level for the stock, is placed at $4.80, while the key resistance level is placed at $5.32 level.

ABY Daily Technical Chart, Data Source: REFINITIV

Note: The orange color line in the chart shows RSI (14-period).

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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.