Temple & Webster Group Ltd

TPW Details

Growth in Business Amid Covid-19: Temple & Webster Group Ltd (ASX: TPW) is an online retailer of furniture and homewares. The Company is engaged in selling of third-party produced furniture and homewares to residential and commercial customers. The company has registered a significant business growth in 1HFY21 amid COVID-19 situation. The company has registered an increase of 102% YoY in its active customers to 678k. TWP’s trade and commercial segment has registered an impressive growth of 89% YoY in 1HFY21. The company has posted ~$3 million per day revenue in the month of November 2020. The company has seen an increase in advertising cost to 12.8% in 1HFY21 to increase brand awareness among consumers. The company has registered higher margins through private labels, which contributes 25% of total revenue.

Key Financial Highlights for 1HFY21: TPW has posted a significant increase of 118% YoY in its revenues to $161.6mn in 1HFY21 on the back of increased online shopping amid COVID-19 situation. The company has registered growth in its NPAT at $12.2 million in 1HFY21 as compared with $2.9 million despite incurring an income tax expense of $2.4 million in 1HFY21 against receiving an income tax benefit of $0.9mn in the previous corresponding period.

Growth in Active Customers (Source: Company Reports)

Key Risks: The company is present in the retail business, so any economic slowdown, resulting in loss of income for the consumers may impact the business of the company. The retail business is mostly dependent on supply of products at the right time to the customers, any disruption in the supply may result in business loss for the company.

Outlook: TPW is looking for a high growth strategy by investing in digital technology to increase the customer awareness going forward. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, TPW has decreased by 1.75% and by 4.62% in the last three months. The current market capitalisation of TPW stands at ~$1.17 billion as on 26 March 2021. The stock is currently trading above the average 52-week price level range of $1.900-$14.050. On the technical analysis front, the stock has a support level of ~$9.47 and resistance of ~$10.40. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering an increase in the active customers and a significant increase in revenues in 1HFY21. For this purpose, we have taken peers Atomos Ltd (ASX: AMS), Redbubble Ltd (ASX: RBL), InvoCare Ltd (ASX: IVC). Considering the fact that company has reported an increase in its active customers, its positive outlook, rise in revenue, increase in cash, and valuation, we recommend a “Buy” rating on the stock at the current market price of $10.10, up by 3.696% as on 26 March 2021.

TPW Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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