Adore Beauty Group Limited

ABY Details

No Longer Substantial Shareholders: Adore Beauty Group Limited (ASX: ABY) is on online retailer of beauty and personal care brands. Skincare, fragrance, make up, wellness, and hair are some of its product categories. On 15^th February 2022, Challenger Limited and Greencape Capital Pty Limited ceased to be the substantial shareholders in ABY.

Growth in Key Metrics During 1HFY22:

• The company posted a revenue increase of ~18% Y-o-Y to ~$113.1 million during the six months ended 31^st December 2021.
• The customer base expanded to 876,000, depicting an increase of ~13% Y-o-Y on pcp basis in 1HFY22. The returning customer growth of ~56% on pcp basis was the key driver and contributed ~71% of the total revenue.
• The gross profit margin stood at ~33.1%, a rise of ~0.6% points on pcp due to brand funding and product margin expansion.
• ABY exited the half-yearly FY22 with ~$25.1 million cash at the end of 31 December 2021

Growth in Annual Revenue per Active Customer, Highlights; (Analysis by Kalkine Group)

Key Risks: The company needs to adapt according to the consumer behaviour dynamics in preferences, income levels, etc. An increasing shift of consumer spending towards online channels causes higher investment in content engagement, channel growth, and brand building.

Outlook:

• ABY is progressing on track to introduce its first private label skincare brand in June 2022 quarter (Q4FY22).
• The company plans to continue investing in its mobile app, private label, loyalty, and adjacency expansion to develop long-term avenues and grow its market share within $11 billion category, and leverage from the beneficial structural tailwinds.
• ABY plans to enhance user’s online transaction experience and site conversion and deepen brand partnerships.

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 ~50.31% in the past three months and a negative return of ~52.41% in the past six months. The stock is currently trading near its 52-weeks’ low level of $2.340. The stock has been valued using the EV/ 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 the increase in operating costs in 1HFY22, continuing investment in owned marketing channels, brand awareness, risks of business expansion, and structural changes. For this purpose of valuation, few peers like Temple & Webster Group Ltd (ASX: TPW), Harvey Norman Holdings Ltd (ASX: HVN), Kogan.com Ltd (ASX: KGN), and others have been considered. Considering the current trading levels, revenue growth, returning customers, and average order value, target of an EBITDA margin of ~2-4% in the short-term, and continued investment in strategic priorities, and indicative upside in valuation, we give a ‘Buy’ rating on the stock at the closing market price of $2.360, down ~4.454% as of 17 February 2022.

ABY Daily Technical Chart, Data Source: REFINITIV  

Carbon Revolution Limited

CBR Details

Recent Updates: Carbon Revolution Limited (ASX: CBR) designs, manufactures, and markets single piece carbon fiber wheels for applications in the aerospace, automotive, and commercial space. CBR provides lightweight wheel technology to auto OEMs (Original Equipment Manufacturers) globally.

• On 15 February 2022, First Sentier Investors Holdings Pty Limited ceased to be a substantial holder in CBR.
• On 14 February 2022, CBR announced the receipt of $6.83 million jobkeeper payments for ~337 individuals for a jobkeeper fortnight that ended in FY21.

Financial Performance in Q2FY22 (Ended 31 December 2021):

• Rise in Wheel Sales: The company posted robust growth in the wheel sales to ~4,397 units, a rise of ~109.4% Q-o-Q in Q2FY22.
• Customer Program Status: During Q2FY22, General Motors declared the launch of Chevrolet C8 Corvette Z06 and Z07 with CBR’s carbon fibre wheels. The company has started production for this program.
• Demand Drivers: CBR is witnessing increased customer involvement in new programs and foresees robust long-term demand from customers due to a shift towards electric vehicles.
• Liquidity Position: CBR held $47.8 million as cash balance as of 31^st December 2021.

Key Financials, Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of peer competition in the industry, technological improvements, shifts in the demand, production, and supply of vehicles.

Outlook:

• CBR is tracking on a plan to produce Ferrari 296GTB and 812 Competizione programs post their roll-out in Q4FY21 (June 2021 quarter).
• CBR experiences a robust long-term sales outlook and has a pipeline of 15 new programs. It has 7 programs in the design & engineering phase with eight (8) already awarded.
• The Mega-line project construction is advancing on track with four electric vehicle programs under its belt. CBR plans to finalise building works and instal equipment at the start of the production line on the project during Q3FY22.
• CBR expects to deliver operational efficiencies via ongoing improvements in processes, equipment, and technologies.

Valuation Methodology: Price to Book Value 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 CBR gave a positive return of ~3.06% in the past month and a positive return of ~2.02% in the past six months. The stock is currently trading below the 52-weeks’ average price level band of $0.785 - $2.512. The stock has been valued using the Price to Book Value-multiple- 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 P/BV multiple, considering the continuing trend of net margins, net operating cash outflows, and the COVID-19 impact on production, and raw material shortages. For this purpose of valuation, a few peers like GUD Holdings Ltd (ASX: GUD), Bapcor Ltd (ASX: BAP), National Tyre & Wheel Ltd (ASX: NTD), and others have been considered. Considering the current trading levels, growth in revenue, cash receipts, ongoing production ramp for Ferrari models, and strong demand outlook and engagement with customers, and indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.010, as of 17 February 2022, 12:32 PM (GMT+10), Sydney, Eastern Australia.

CBR 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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