Toys“R”Us ANZ Limited

TOY Details

Key Updates: Toys“R”Us ANZ Limited (ASX: TOY) previously known as Funtastic Limited, operates as a retailer of toys, clothing and baby products in Australia.

• Recently, Kevin Andrew Moore has made a change to holdings in the company via acquiring 108,110 Fully Paid Ordinary Shares and 1,696,717 Unlisted Options.
• On 20 December 2021, the company has released 141,138,623 fully paid ordinary shares from escrow.

Market Opportunity in UK:

• The company believes that the UK is one of the most advanced e-commerce markets in Europe, wherein internet sales account for more than one-quarter of all retail sales. This is likely to increase to one-third of all retail sales by 2025.
• The total addressable toy market for Toys“R”Us is £3.3 billion, indicating the largest toy market in Europe and the fourth largest globally. In addition, the total addressable baby market for Babies“R”Us is of ~£3.4 billion.

Financial and Operational Highlights:  

• For the year ended 31 July 2021 (FY21), the company recorded revenue amounting to $48.2 million as compared to $24.6 million in FY20. In addition, gross profit for the year amounted to $11.1 million against $3.5 million in FY20.
• The company posted revenue of $4.6 million as compared to $2.0 million in November 2021. The said revenue growth was backed by increased average order values through Toys“R”Us combined with higher order volumes.
• As at 30 June 2021, the company had a cash balance of $17.3 million, up from $367k as at 30 June 2020.

Revenue (Source: Analysis by Kalkine Group)

Key Risks: The company’s business is exposed to financial risks caused by changes in foreign currency exchange rates and interest rates. In addition, the business could also be impacted by supply and demand instability.

Outlook: The company is currently focused on executing important future goals, which include construction of the new 19,650 m² e-commerce fulfilment facility in Victoria and business expansion into the United Kingdom.

Valuation Methodology: EV/Sales 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 company is trading close to its 52-week low-high average of $0.140. The stock of TOY has been corrected by ~17.14% in the past three months. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight premium to its peers’ average EV/Sales multiple, considering market opportunity in UK and expansion plans. For the purpose of valuation, peers such as Baby Bunting Group Ltd (ASX: BBN), Super Retail Group Ltd (ASX: SUL), and Michael Hill International Ltd (ASX: MHJ) have been considered. Considering the expected upside in valuation, rising revenue, UK market opportunity, decent outlook, current trading level and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.145, as on 03 February 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

TOY 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 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.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices

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