Redbubble Limited

RBL Details

Appointment of Company Secretary: Redbubble Limited (ASX: RBL) owns and operates the Redbubble and TeePublic online marketplaces. It helps in the facilitation of art and design by independent creatives to the consumers. As per a recent update, the company has announced that it has appointed Mr Martin Bede as its new Australian-resident Company Secretary, following the resignation of Mr Paul Gordon from the position.

Change in Shareholder’s Interest: As per a recent update, Kayne Anderson Rudnick Investment Management, LLC, Virtus Investment Advisers, Inc., and their associates have undergone a change of interest in the company and has increased their voting power from 8.05% to 9.14%.

Update on Litigation: On 24 June 2021, the company has noted that its US subsidiary, Redbubble Inc, has received a court verdict in an ongoing litigation case started by US fashion retailer Brandy Melville in California. The judgement is related to alleged intellectual property infringement and includes an award of US$520,000. As per RBL, certain aspects of the case were not supported by the evidence offered and will be seeking for relief from the court.

YTD 31 March 2021 Performance Update: The company delivered decent performance during the period.

• Marketplace revenue grew by ~85% to ~$456 million when compared to the pcp.
• Gross profit was at ~$184 million, an increase of ~100% on the pcp.
• RBL delivered EBITDA of ~$51 million, compared to a loss of $2 million in FY20.
• During the period, the company reported an operating cashflow of ~$54 million, compared to $6 million in the previous year.
• The company ended the period with a cash balance of ~$102 million as of 31 March 2021. For the period ending December 31, 2020, RBL posted a cash balance of ~$130 million and debt of $7.4 million.

Increasing Trend in Revenue (Source: Analysis by Kalkine Group)

Key Risks:  

• The company is dependent on its technological expertise to provide its clients with an enhanced shopping experience. Any loss of key personnel or talent in this regard might impact the performance of the online marketplaces.
• RBL is also faced with legal risks with regards to IP infringements from related peers in the sector.

Outlook: The company’s medium-term aspiration is to achieve over $1.5 billion in Gross Transaction Value, $1.25 billion in marketplace revenue and deliver $250 million in artist revenue. It plans to achieve this objective through organic investments and strategic M&A opportunities.

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:  As per ASX, the stock of RBL is trading below its average 52-weeks’ levels of $2.610-$7.350. The stock of RBL gave a positive return of ~29.36% in the past one year and a negative return of ~14.07% in the past three months. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount to its peer average EV/Sales (NTM trading multiple), considering the decline in current ratio and ongoing litigation. For this purpose, we have taken peers such as Kogan.com Ltd (ASX: KGN), Temple & Webster Group Ltd (ASX: TPW), Adore Beauty Group Ltd (ASX: ABY), to name a few. Considering the expected upside in valuation and current trading levels, strong cash position and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $3.390, as on 04 August 2021, 10:28 AM (GMT+10), Sydney, Eastern Australia.

RBL Daily Technical Chart, Data Source: REFINITIV 

Synlait Milk Limited

SM1 Details

Business Update: Synlait Milk Limited (ASX: SM1) is engaged in the manufacturing and production of quality dairy products to milk-based nutrition companies. As per a recent announcement, the company has agreed to refinance its maturing syndicated banking facilities and the following discussions and changes to the funding arrangements were made:

• The working capital facility of ~NZ$250 million has been extended for 12 months and will mature on 1 October 2022. An additional funding requirement of NZ$80 million has been agreed to bridge the seasonal half-yearly FY22 working capital needs.
• A revolving credit facility of ~$100 million has been agreed, which will be required for the majority of FY22 period.

Historical Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is faced with the challenge of logistics delays, which might impact the sale of key ingredients and products.

Outlook: The company expects the NPAT to be between NZ$20 million to NZ$30 million in FY21. Given the headwinds faced in FY21, the company plans to deliver improved performance in FY22, supported by the banking syndicate.

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: As per ASX, the stock of SM1is trading below its average 52-weeks’ levels of $2.640-$6.490. The stock of SM1gave a positive return of ~10.69% in the past three months and a negative return of ~18.51% in the past six months. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit (in % terms). We believe that the company can trade at some discount to its peer median EV/Sales (NTM trading multiple), considering the logistics delays, muted financial performance, and the impact of COVID-19 on the business. For this purpose, we have taken peers such as A2 Milk Company Ltd (ASX: A2M), United Malt Group Ltd (ASX: UMG), Nuchev Ltd (ASX: NUC), to name a few. Considering the expected upside in valuation and current trading levels, refinancing & favourable covenant terms, expected improvement in performance in FY22 and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $3.460, as on 04 August 2021.

SM1 Daily Technical Chart, Data Source: REFINITIV

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.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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