City Chic Collective Limited

CCX Details

City Chic Collective Limited (ASX: CCX) is involved in the retailing of women’s apparel. It is the collective of the customer-led brands which includes City Chic, Avenue, Evans, CCX, Hips & Curves and Fox & Royal. The company has a market capitalisation of around $1.14 billion on June 8, 2021.

Results Performance (Half-Year ended 31 December 2020 – H1FY21)

The company delivered resilient financial results in 1HFY21 with sales revenue growth of 13.5% to ~$119 million, compared to the previous corresponding period. There was comparable sales growth of 20.8%, excluding the closure of the Victorian stores. The US online websites contributed sales of $45 million during the first half, compared to $26 million in the pcp, aided by the expanded customer base from the Avenue acquisition.

There was an increase of 21.8% in underlying EBITDA to $23.3 million. Statutory NPAT increased by 24.8% to $13.1 million. The company reported an improvement in the normalised operating cash flow to $21.5 million.

Key Data (Source: Company Reports)

Outlook:

The average annual spend in the plus-size segment is significantly less than the rest of the women's apparel market. Moreover, there has been a trend where curvy women are gaining confidence. In the first 8 weeks of H2 FY 2021, the company advised that it has continued to deliver robust positive comparable sales growth. The company is focused on integration of Evans as well as introduction of the wider range of product as well as lifestyles.

Key Risks:

CCX is dependent on imported products, and this exposes the company to currency risks. The Group is also exposed to risks from environmental changes, which is managed by diversifying its vendors and material sourcing.

Valuation Methodology: P/E Multiple Based Illustrative Relative Valuation

Technical Overview:

Weekly Chart:

Source: REFINITIV

CCX' prices witnessed decent upside movement in the recent past and now are facing stiff resistance from an upper band of a rising wedge pattern, indicating the possibility of a downside correction. On the weekly chart, the momentum indicator RSI (14-period) is trading at ~68.37 levels, near an overbought region. RSI (14-period) is also forming a negative divergence with the price action and further supporting a negative stance. However, prices are trading above the trend-following indicators 21-period SMA and 50-period SMA, acting as the support levels for the stock.

Stock Recommendation:

The company’s gross margin, EBITDA margin and net margin for H1FY21 stood at 49.1%, 20.1% and 10.9%, better than the industry median of 23.9%, 8.3% and 3.8%, respectively implying decent fundamentals of the company.

However, the company is exposed to some business risks as the retail market is quite competitive. Notably, the retail fashion market has been consolidating as well as it has been feeling the effects of globalization. The company is also exposed to the risks related to the COVID-19 pandemic.

We have valued the stock using P/E multiple-based illustrative relative valuation and there are expectations that the stock price might witness a fall of low double-digit (in % terms). We have applied a slight discount to Price/EPS Multiple (NTM) (Peer Average) considering subdued bottom-line performance as well as the business risks.

Considering the aforesaid facts, it is advisable to liquidate the position. Thus, we give a “Sell” rating on the stock at the current market price of $4.920 per share, up by 2.286% on 8^th June 2021.

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.

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