Lovisa Holdings Limited

LOV Details

Lovisa Holdings Limited (ASX: LOV) is mainly in the business of the retail sale of fashion jewellery as well as accessories. The market capitalization of the company stood at ~$1.70 billion as on 8^th July 2021.

Result Performance (Half-Year Ended 27 December 2020 – H1FY21):

Revenue of the company for the interim period stood at $146.9 million, a decline of 9.8% on the previous corresponding period (pcp), reflecting the impact of temporary store closures and disruptions caused by COVID-19 across all markets, particularly during the first quarter. The gross profit for the period stood at $113.4 million, a decrease of 11.7% on the pcp which was impacted by higher inventory provisioning and higher freight costs.  Earnings before interest and tax were $30.5 million, a decrease of $10.6 million (25.8%) on the prior half year. Net profit after tax was $19.6 million a decrease of $7.1 million (26.7%) on the prior half. The Group’s balance sheet remains strong with net cash of $42.5 million on hand at balance date. The Board of Directors declared an interim dividend of 20.0 cents per share (50% franked).

Key Data (Source: Company Reports)

Recent Update:

The company, on 28 May 2021,  announced that it continued to experience  disruptions to trading and temporary store closures as a result of government COVID-19 measures over recent months.   However,  most markets it operates in are now back to trading including the UK and France who had been subject to lengthy store closure periods.

Outlook:

The company’s first quarter sales suffered from temporary store closures across all markets necessitated by lockdowns imposed. However, the second quarter saw significant improvement in the company’s sales with re-opening of stores. The Australian and New Zealand markets delivered a standout performance with positive comparable store sales. Its digital channel remains an important part of its global strategy critical in providing its customers with the full range of shopping options that they require. It is expected to continue to invest in support structures to drive ongoing growth in this area and remain focused on maintaining the profitability levels of its online sales. Further, the acquisition of the beeline retail business and the ongoing expansion in its store network will stimulate the company’s sales and profitability in the upcoming times. Its balance sheet remains strong with available cash and debt facilities supporting continued investment in growth.

As a result of the current uncertainty in the global economic environment, the company is not in a position to provide any further information in relation to the outlook for the business.

Key Risks:

The company is susceptible to excess competition, exchange rates, changes in consumer preferences, supply chain disruptions, etc.

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

Technical Overview:

Chart:

LOV prices are trading at higher levels and are facing stiff resistance of an upward sloping trend line that indicates prices might take downward correction. RSI (14) is hovering at an overbought region on the daily chart that suggests profit booking might occur any time soon. Prices are trying to make double top pattern on a daily chart which is a bearish pattern. Immediate support levels are $15.29 and $14.32 while immediate resistance levels are $16.58 and $17.78.

Stock Recommendation:

The company’s gross margin, EBITDA margin and net margin for H1FY21 stood at 73.5%, 38.5% and 13.3%, better than the industry median of 21.1%, 9.6% and 5.1%, respectively implying improved operating efficiency.  However, there have been increased cases of new variant of the pandemic which might force the governments to impose localized if not nationwide lockdowns which could result in store closures, and hence, investors are advised to exercise caution at this stage till a clearer picture emerges.

LOV’s share is trading close to 52-week high price, therefore, it is advisable for investors to book profits at the current levels.

We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price that reflects a decline of low double-digit (in % terms). We have applied a slight discount to EV/Sales Multiple (NTM) (Peer Average) considering fall in total revenue as well as the business risks.

Considering the aforesaid facts, we give a “Sell” recommendation on the stock at the current market price of $16.355 per share (Australia Time: 11:14 am) as on July 8, 2021.

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.

IDP Education Limited 

IEL Details

IDP Education Limited (ASX: IEL) is an education services provider that is involved in the placement of international students into educational institutions in Australia, the United Kingdom, Canada, the USA, New Zealand, and Ireland.

Result Performance (Half-Year Ended 27 December 2020 – H1FY21):

The company reported total revenue of $269 million, a decrease of 29% on  the same period last year.  Earnings before interest and tax (EBIT) for the period stood at  $47.3 million, a decrease of 46% compared with the same period last year.  The  cash Balance at the end of the period stood at $293 million, which reflected strong cash flow,  backed by disciplined cost management. The company’s $175 million working capital facility  along with the cash balance further strengthens the company’s balance sheet and provides it with access to significant liquidity.   The Board of Directors declared an 8.0 cents per share unfranked interim dividend, representing ~75% of the H1 net profit after tax.

Key Data (Source: Company Reports)

Recent Update:

The company recently highlighted that it has entered into a binding agreement to acquire 100% of the British Council’s Indian IELTS operations (“BC IELTS India”) for £130 million on a debt-free, cash-free basis.

Outlook:

The interim result of the company reflects on recovery underway. The increased demand for IEL’s digital services reinforces that its higher education clients are relying on its data to develop their post-COVID recruitment strategies. With its global teams in place, a supported pipeline of students, and increased digital capabilities, the company is trying to capture the demand as its customers reignite their global travel and study ambitions.

Key Risks:

The company is susceptible to certain risks such as regulatory risk (any alteration in the immigration policies or visa requirement has direct impact on the company’s earnings), competition, risks of operating a global company, etc.

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

Technical Overview:

Chart:

Source: REFINITIV

IEL prices witnessed significant gains of ~50% after the stock prices tested $20.17 as on May 13, 2021. Prices are now trading near the resistance and could reverse from higher levels. RSI (14) is hovering near the overbought region at 78.85 level that indicates profit booking might occur at higher levels. There is a bearish negative RSI divergence that further indicates bearish movement ahead. Immediate support levels are $27.46 and $25.45 while immediate resistance levels are $30.60 and $34.23.

Stock Recommendation:

The company’s gross margin, EBITDA margin and net margin for H1FY21 stood at 65.4%, 23.8% and 11.0%, lower than the industry median of 71.1%, 41.8% and 21.6%, respectively. ROE for H1FY21 stood at 7.4%, lower than the industry median of 7.9%. Further, there remains uncertainty around travel and border restrictions which might result in a decline in the volume of student placement.

We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price that reflects a decline of low double-digit (in % terms). We have applied a slight discount to EV/Sales Multiple (NTM) (Peer Average) considering fall in net income as well as the risks associated with the business.

Considering the aforesaid facts, and current trading levels, we give a “Sell” recommendation on the stock at the current market price of $30.020 per share (Australia Time: 2:05 pm) as on July 8, 2021.

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.

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