Adairs Limited

ADH Limited

Adairs Limited (ASX: ADH) is Australia’s largest omnichannel specialty retailer of home furnishings and home decoration products. The company has a market capitalisation of ~$674.61 million as on 30^th March 2021.

Results Performance (Half-Year ended 27 December 2020)

Group sales for the interim period stood at $243.0 million, an increase of 34.8% on the previous corresponding period (pcp). Group sales for the period comprise Adairs sales of +20.9%, Mocka sales of +44.4% and online sales of +37.1%.

Underlying Group EBIT for the period stood at $60.2 million, an increase of 166% on the pcp. Statutory NPAT for the period stood at $43.9 million, an increase of 233.4%. Net cash at the end of the period stood at $22.1 million. The Board of Directors declared an interim dividend of 13.0 cents per share (fully franked).

Key Data (Source: Company Reports)

Outlook:

The company has delivered outstanding results for the interim period. However, concerns on inconsistent stock flow from China and South East Asia due to international shipping disruptions across the regions remain there and is likely to further aggravate with the increasing number of cases of new COVID-variant. The ongoing uncertainty relating to COVID-19 has forced the Board of the company not to provide guidance for the full-year FY21.  

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

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

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

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

Having experienced a surge in price which brought the stock to the high level of $4.47, it has started correcting which is evident from a ‘Bearish Engulfing’ candle formed on the weekly chart. The technical indicator RSI with a reading around 56 and a curve at the end pointing down, suggests weakening of a bullish momentum.

Going forward, the stock may have resistance around the upper Bollinger band of $4.26 whereas support could be around the 23.6% retracement level of $3.03.

Stock Recommendation:

The company’s stock has increased by ~16.9% in 3 months and ~20.5% in 6 months. The stock has made a 52-week low and high of $0.69 and $4.45, respectively. The stock is trading towards its 52-week higher levels. The company is having a higher cash cycle of 37.2 days for H1FY21 as against the industry median of 24.0 days. Further, the company also has a higher debt-to-equity ratio of 0.7x for H1FY21 than the industry median of 0.46x.

Considering the aforesaid facts, we give a “Sell” recommendation on the stock at the current market price of A$3.870 per share, down by 3.008% on March 30, 2021.

ADH Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

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