Accent Group Limited

AX1 Details

Update on Acquisition Agreement: Accent Group Limited (ASX: AX1) is engaged in retailing and distribution activities in Australia. The company operates with 479 stores across 10 retail banners and distribution rights for 10 international brands across Australia and New Zealand. The company’s brand includes Athlete’s Foot CAT, Palladium, Platypus, Skechers, Timberland and many more. On 23 April 2021, the company entered into an agreement to acquire Glue store retail business and wholesale and distribution business of Next Athleisure Pty Ltd (NAL) for a consideration of $13mn. The acquisition will provide an increased presence to AX1 in the apparel market and a leadership position in the lifestyle and youth apparel market.

1HFY21 Financial Highlights: The company has registered an increase in its revenue to $478.05mn in 1HFY21 as compared with $454.18mn in 1HFY20. Similarly, the company has posted higher profits in 1HFY21 to $52.79mn as compared with $33.56mn in 1HFY20. The company has posted an increase in its cash and cash equivalent position to $72.78mn as on 27 December 2020 as compared with $54.91mn as on 28 June 2020. Digital sales have increased by 110% YoY in 1HFY21.

Key Financials (Source: Company Reports)

Key Risks: The company is engaged in retail activities and operates in multiple countries. Any severe foreign exchange price movement may lead to financial losses for the company. AX1 is exposed to an economic slowdown. Any such condition may result in the closure of stores across regions and may lead to financial losses for the company.  

Outlook: As per the company reports, the company has opened 50 new stores in 1HFY21 and expects to open a total of 90 new stores in FY21 across all the brands. The company is expecting to exceed its vertical sales to more than $20mn in FY21. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, AX1 has increased by ~23.80% and by ~20.16% in the last three months. The current market capitalisation of AX1 stands at ~$1.40bn as of 23 April 2021. The stock is currently trading at par with its 52-weeks’ high level of $2.890. On the technical analysis front, the stock has a support level of ~$2.626. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer average, considering a Covid-19 lead situation, higher marketing expenditure and volatility in the market. For this purpose, we have taken peers Nick Scali Ltd (ASX: NCK), Beacon Lighting Group Ltd (ASX: BLX), Adairs Ltd (ASX: ADH), to name a few. Considering the increase in revenue and profits in 1HFY21, increase in cash and cash equivalents, acquisitions synergies to lead the youth apparel market in Australia and New Zealand, valuation, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $2.890, up by ~11.153% as on 23 April 2021.

AX1 Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: 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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