Adore Beauty Group Limited

ABY Details

Latest Updates: Adore Beauty Group Limited (ASX: ABY) operates an online beauty platform and collaborates with partners’ personal care and beauty brands. It has a diverse portfolio of ~10,800 products and ~260 brands.

Board Changes: In November 201, ABY declared the retirement of Justin Ryan from his current role of Chair and Non-Executive Director. Marina Go will replace him as the Chair of the Board and Independent Non-Executive Director.

Key Takeaways of Q1FY22:

• ABY recorded a 2-year CAGR of ~60% in revenue from Q1FY20 to Q1FY22 (ended 30 September 2021).
• The company is witnessing structural changes towards a growing online business and benefit from the robust increase in new and returning customers in Q1FY22 (ended 30 September 2021). ABY witnessed returning customer growth of ~63% on PCP in Q1FY22.

Growth in Active Customers, Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of changes in consumer behaviour, tastes, and income. Increasing peer competition in the online space, higher investment in marketing, & brand awareness, etc. can lead to pressure on margins. 

Outlook:

• ABY plans to release the 1HFY22 results ended 31 December 2021 on 15 February 2022 and hold an investor briefing at 10.30 AM on the same date.
• ABY is undertaking strategic initiatives of developing owned marketing channels, and community, growing loyalty programs, and scaling its iOS and Android mobile apps. It plans to grow its range authority and launch its first private label brand in Q3FY22.
• In FY22, ABY focuses to grow its market share and solidify online market leadership. It plans to grow a sustainable revenue line via enhanced online transaction experience and improved owned content and engagement strategy.
• It expects to maintain an EBITDA margin of 2-4% in the near-medium term and further EBITDA expansion through higher operating leverage.

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 stock of ABY gave a negative return of ~43.52% in the past three months and a negative return of ~42.97% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $2.780 - $6.330. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median EV/Sales multiple, considering risk of changes in consumer behaviour, increasing peer competition in the online space, COVID-19 led uncertainties, etc. For this purpose of valuation, a few peers like Temple & Webster Group Ltd (ASX: TPW), Redbubble Ltd (ASX: RBL), Mydeal.Com Au Ltd (ASX: MYD), and others have been considered. Considering the low trading levels, growth in revenue, and active customers, plans to launch private label brand in the next quarter, reinvestment in the business to expedite the growth trajectory, and indicative upside in valuation, we give a ‘Buy’ rating on the stock at the current market price of $2.880, as of 7 February 2022, 12:47 PM (GMT+10), Sydney, Eastern Australia.

ABY Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: 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.

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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