Adore Beauty Group Ltd

ABY Details

Adore Beauty Group Ltd (ASX: ABY) is Australia’s largest pureplay online beauty retailer and has, over the period, evolved into an integrated content, marketing, and e-commerce retail platform. It has partnerships with the broad and diverse portfolio of more than 260 brands and 10,800 products.

H1FY21 Results Performance (For the Period Ended 31 December 2020)

The company has posted a healthy performance during the half-year ended 31 December 2020 and revenue increased significantly by 84.9% YoY to $96.16 million over the comparative period in FY20 supported by solid customer growth and multiple record trading days including Afterpay Day in August and Cyber Weekend in November 2020. Further, the company reported a negative statutory EBITDA of $0.76 million as a cost relating to the company’s IPO and initial listing on the Australian Securities Exchange and share-based payment to teams weighed on it. Negative EBITDA had a negative bearing on the company’s net profit after tax for the period which came at $2.54 million as against a net loss of $3.18 million in H1FY20.

Consolidated Income Statement (Source: Company Reports)

Q3FY21 Trading Update

The company experienced strong trading in Q3FY21 with revenue recording a growth of 47% YoY led by customer retention and strong performance in the core categories of skincare and haircare. Its active customer base at the end of the period stood at 687k, an increase of 69% on PCP. To further accelerate the revenue growth and consolidate the online leadership position, ABY continues to maintain disciplined investment.

Key Risks

The company’s operations are exposed to key risks like the structural shift in consumer behaviour towards store-sales from online sales. Further, there is the possibility of overestimating on new market potential in the zeal to expand into a new market.

Outlook

ABY continues to witness a structural shift in consumer behaviour towards online retail as reflected by the sustained strong retention of customers acquired during COVID lockdown. It has multiple avenues for pursuing growth. Its growth strategy is focused on growing the core business and expanding into new markets and adjacent categories.

Meanwhile, it has guided achieving revenue growth between 43% - 47% in FY21 as against its pre-COVID revenue growth of 38.6% in FY19.

Besides, the company assumes the benefits of scale would result in growth in operating leverage and subsequently would help in achieving expansion in EBITDA margin in the longer term as the company continues to boost revenue.

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

Technical Overview:

Chart –

Source: Refinitiv (Thomson Reuters)

Stock Recommendation

The stock declined by ~43.9% in 6 months. It has made a 52-week low and high of $3.310 and $7.420, respectively.  

We have applied EV/Sales based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a premium to EV/Sales Multiple (NTM) (Peer Average) considering its growth strategies towards augmenting its core business as well as expanding into new markets and adjacent categories. For the purposes of relative valuation, we have taken peers like Temple & Webster Group Ltd (TPW.AX), Redbubble Ltd (RBL.AX), and Booktopia Group Ltd (BKG.AX), among others.

Considering the aforementioned factors, decent outlook, and solid liquidity position, we give a “Buy” recommendation on the stock at the current market price of A$3.430 per share, up by 3.313% on 17^th May 2021. 

Note: 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 Valuation has been achieved and subject to the factors discussed above.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.