Lovisa Holdings Limited

An update on Lovisa H1 FY19 performance:Lovisa Holdings Limited (ASX: LOV) reported H1FY2019 revenue growth of 12.3% to come in at $133.2 Mn from $118.6 Mn in the prior year. This rise was on account of strong growth witnessed in store numbers as 40 new stores opened during the first half of the year. However, comparable store sales were down by 1.8% impacted by challenging conditions in the Australian market and cycling strong comparable sales from the first half prior year.

Company’s gross profit was reported up by 13.0% to $107.8 Mn in 1HFY19 from $95.4 Mn in the previous corresponding period. The gross margin increased by 60 bps to 81.0% as the company continued to benefit from higher USD hedge rates in the period along with better inventory management and promotional effectiveness despite the more challenging trading conditions.

Due to a strong balance sheet and cash flow, with cash conversion of 121% the company reported operating cash flow at $49.1 Mn. Owing to strong result, the company’s board has declared an Interim dividend (fully franked) of 18.0 cents per share. It will be paid on 26 April 2019 with ex-date of 11 March 2019 and record date of 12 March 2019.

 
Growth in Number of Lovisa Stores (Source: Company Reports)

Lovisa Holdings aims to continue its investments in the future growth of the business to maintain strong gross margins and bring down the cost of doing business. It expects currency headwinds to begin to have an impact later in the current financial year till the year 2020 as its average USD hedge rate is reducing. The company expects to increase its number of stores for the second half of FY19, higher than in the second half of FY18.

Stock Recommendation: LOV’s share price has generated a positive YTD return of 55.95% and is trading at a PE level of 27.91x which is higher than the industry median of 10.4x. It indicates overvalued position at the current juncture.We, therefore, recommend an “Expensive” rating on the stock at the current market price of $9.730 and believe that investors would get an opportunity to enter the stock at a lower price point after few trading sessions.

GetSwift Limited

An update on GSW stock decline:GetSwift Limited (ASX: GSW) announced about the proceedings by Australian Securities and Investments Commission (ASIC) against it and two of its directors, Mr Joel Macdonald and Mr Bane Hunter. It is alleged that the company failed to meet its continuous disclosure obligations and engaged in misleading or deceptive conduct between the period February 2017 and December 2017.

ASIC is seeking pecuniary penalties against the Company and each of Mr Macdonald and Mr Hunter as well as orders disqualifying Mr Macdonald and Mr Hunter from managing corporations for a period.

In a previous update, the company announced about its two strategic acquisitions in North America i.e. delivery management platform “Delivery BIZ Pro” and popular workforce scheduling provider, “Scheduling+”.


Operating Cash Flow (Source: Company Reports)

As per the company reports, GetSwift has recently recruited a game-changing team to lead its technology roadmap into Artificial Intelligence (AI), predictive analytics, and machine learning. To better serve clients seeking last mile solutions, the company is building a team of last-mile sales, marketing and support specialists.

Meanwhile, the GSW’s share price has generated a positive YTD return of 20.55% and trading at close to lower level. We believe that there is a lack of any positive catalyst at the current juncture which can fuel the stock higher. Mounting losses and declining margins are not expected to turn around anytime soon. The stock can be avoided as of now at the current market price of $0.300 (down 31.818% on 25 February 2019). 

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