City Chic Collective Limited

 

CCX Details
 
Update on Negotiations with Landlords: City Chic Collective Limited (ASX: CCX) is engaged in the retailing of women’s fashion products in Australia, New Zealand, Germany, USA, and the UK. The market capitalisation of the company stood at $513.12 Mn as on 15 June 2020. Recently, the company notified the market with an update in relation to COVID-19 and stated that it has concluded negotiations with the landlord and has agreed to lessen rent in the time period of store closures. Consequently, the company has planned to shut down 14 holdover stores, where it was unable to reach the negotiation. Also, the company is expected to have minimal impact on its financial results, due to these store closure. It is worth mentioning that, around 92 stores in Australia and New Zealand are now fully functional after the government has eased restrictions relating to coronavirus pandemic.
 
Other Recent Update: In another update, the company stated that Pendal Group Limited, a substantial holder of the company, has increased its voting power from 5.33% to 6.4%.
 
Half Yearly Highlights:For the 26 weeks period to 29th December 2019, the company reported sales amounting to $104.8 million, up 39% on pcp. Higher contribution from Avenue and Hips and Curves acquisition were key growth strategies. The online channel comprised 53% of total sales as compared to 44% during the previous year. Underlying EBITDA stood at $19.1 million. The company reported PBT from continuing operations of $16 million, as compared to $13.9 million reported in the year-ago period. Normalised operating cash flow during the period came in at $17.1 million, up from $14.6 million reported in 1HFY19. The company exited the period with a cash balance of $14.9 million, and net debt amounting to $2.6 million. 
 

1HFY20 Key Highlights (Source: Company Reports)
 
Growth Impetus:  City Chic Collective Limited is on track to achieve positive comparable sales growth for FY20. The focus of the company is on the execution of growth initiatives like reinvigorating the avenue brands to deliver segment expansion.The company reported strong growth of 57% in online sales during the store’s closure period.  The company added that it has driven working capital efficiencies, deferred non-essential capital expenditure and decreased costs throughout the head office as well as in the store-driven activity over the past eight weeks.
 
Risk Analysis:   The company operates in an environment of change and uncertainty, which may pose a financial threat to CCX.Further, stiff competition from peers, foreign exchange fluctuations, consumer discretionary spending along with changing customer buying patterns are potential headwinds.
 
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of the company went up 19.07% in the last three months and is currently trading above the average of its 52-week trading range of $0.715 - $3.670. The stock has an annual dividend yield of 1.56% with a P/E ratio of 29.98x. The company is in a robust financial position with minimal debt and significant headroom in its $40 million debt facility. The reactive and flexible supply chain of the company places the business in a decent position to manage its working capital during this COVID-19 crisis. However, we are yet to see how the results for FY20 pan out amid coronavirus spread. Net Margin of CCX stood at 10.0% in 1HFY20 as compared to the industry median of 4%, which reflects that CCX possesses higher capabilities to convert its top-line into the bottom-line against the peer group. ROE of the company stood at 21.4% in 1H FY20 against 9.7% of the industry median. We have valued the stock using the EV/Sales multiple based relative valuation method (illustrative) and have arrived at a target price with lower double-digit upside (in percentage terms).For this purpose, we have taken peers such as Lovisa Holdings Ltd (ASX: LOV), Nick Scali Ltd (ASX: NCK) and Temple & Webster Group Ltd (ASX: TPW). Hence, considering the strong financial position, focus of the company on the execution of growth initiatives, re-opening of stores in ANZ and current trading levels, we give a “Hold” recommendation on the stock at the current market price of $2.71 per share, up by 5.859% on 15 June 2020.
 
 
CCX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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