Stocks’ Details

Temple & Webster Group Ltd

Growth in Active Customers Supported Topline Growth: Temple & Webster Group Ltd (ASX: TPW) is an online retailer of furniture and homewares and the market capitalisation of the company stood at $1.17 Bn as on 15^th December 2020.  The company commenced FY21 with strong YoY revenue growth of 161% (to Aug 27). In the month of July 2020, TPW surpassed the toll of 500,000 active customers. During FY20, the company reported revenue amounting to $176.3 million, indicating an increase of 74% against FY19. In addition, the company’s revenue in 2H FY20 soared by 96%. This growth in revenue was mainly fueled by growth in active customers, which rose by 77% to ~480k in FY20. As a result of higher gross margin dollars and tight management of fixed costs, the company experienced a rise of 673% in EBITDA to $8.5 million.

Revenue Per Active Customers (Source: Company Reports)

Outlook: Looking forward, the company would continue to enhance its digital advantage, which includes better use of its immense amounts of data via initiatives such as personalisation. In addition, the company’s long-term growth strategy revolves around taking benefit of online market penetration.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: During the month of April to July 2020, the company grew its market share by 150% as compared to the 57% growth of its category as per the NAB online sales index. The company closed FY20 with in a cash flow positive position with a cash balance of $38.1 million and nil debt. On the technical analysis front, the stock has a support level of ~A$8.682 and a resistance level of ~A$10.145. We have valued the stock using the price/cash flow multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers such as Kogan.com Ltd (ASX: KGN), Redbubble Ltd (ASX: RBL), and Breville Group Ltd (ASX: BRG). Thus, considering the decent cash position, nil debt, decent growth in top-line, we give a “Buy” recommendation on the stock at the current market price of $9.530 per share, down by 2.157% on 15^th December 2020.

MyDeal.com.au Limited

Record Gross Sales in November 2020: MyDeal.com.au Limited (ASX: MYD) is engaged in the operation of an online retail marketplace, which is focused on household goods like furniture and homewares. The market capitalisation of the company stood at ~$328.71 Mn as on 15^th December 2020. On 22^nd October 2020, the company got listed on ASX through an IPO of $40 million, which the company would use to improve its private label business and for investment in its proprietary technology. In the month of November 2020, the company recorded gross sales of ~$30.0 million, reflecting YoY growth of 192%. In addition, the company’s sales for the first 5 months of FY21 amounted to $105 million, which surpassed Gross Sales for the entire FY20, i.e., $103 million.

For the quarter ended 30^th September 2020, MYD noted strong growth in business supported by gross sales of around $56.7 million, reflecting a rise of 317% over Q1 FY20. During the same quarter, the company also witnessed strong growth of 27% and 55% in the number of orders from new and returning customers, respectively.

Quarterly Gross Sales (Source: Company Reports)

Outlook: The company is planning to roll out its iOS and Android apps in 2H FY21. In addition, the company is focused on optimising the website to increase conversion rates and average order value.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: At the end of FY20, the company had a strong proforma cash position of ~$37.87 million with negligible debt. This provided company with the flexibility to invest in and execute its growth plan. The stock of MYD has corrected 0.39% and as a result, the stock is trading towards its 52-week low level of $1.145, offering decent opportunities for accumulation. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as Temple & Webster Group Ltd (ASX: TPW), Briscoe Group Ltd (ASX: BGP) and Accent Group Ltd (ASX: AX1). On the technical analysis front, the stock has a support level of ~A$1.204 and a resistance level of ~A$1.373. Hence, considering the decent growth in gross sales, growth in number of orders, decent outlook, and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $1.250 per share, down by 1.575% on 15^th December 2020.

Harvest Technology Group Ltd

Addition to S&P/ASX All Technology Index: Harvest Technology Group Ltd (ASX: HTG) is engaged in the provisioning of offshore solutions and engineering services for subsea intervention projects and asset integrity risk mitigation. The market capitalisation of the company stood at $153.98 million as on 15^th December 2020. As per the recent quarterly rebalance of S&P/ASX Indices, HTG has been added to S&P/ASX All Technology Index, which will be effective at the open of trading session on 21^st December 2020. During the quarter ended 30^th September 2020, the company released its three-phase corporate strategic plan in order to enhance the growth potential of group in the fast-growing satellite communications market. In addition, HTG entered into a tripartite global marketing alliance with Inmarsat Enterprise (Inmarsat) and Applied Satellite Technology Group. The net cash outflow from the operating activities stood at $1.6 million and 7k from investing activities. During FY20, group sales amounted to $11.5 million as compared to $11,747 in FY19 supported by growth in each of business segments. Loss for the year amounted to $6,149,727 against $1,454,431 in FY19.

Key Metrics (Source: Company Reports)

Outlook:  The company would continue to assess commercial opportunities available for the Shine and develop and market its technology products and services in FY21. Looking forward, the company plans to launch its strategic proposal and implementation methodology.

Stock Recommendation: The company ended September 2020 quarter with cash balance of $9.494 million.  In the span of last six months, the stock of HTG has moved up by 87.87% and 52 week low-high range for the stock stands at $0.044 - $0.405, respectively. On TTM basis, HTG has EV/Sales multiple of 13.1x, which is higher than the industry median (Technology) of 6.3x. On the technical analysis front, the stock has a support level of ~A$0.25 and a resistance level of ~A$0.34.  In addition, the stock is trading at a price to book value multiple of 12.2x against the industry median (Technology) of 5.1x on TTM basis. Hence, considering the higher valuation and steep price movement, we are of the view that most of the positive factors have been discounted and give an “Expensive” recommendation on the stock at the current market price of $0.310 per share, down by 1.588% on 15^th December 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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