Accent Group Limited

AX1 Details

Change of Director: Accent Group Limited (ASX: AX1) operates retail stores, commercialises, and manage franchise for lifestyle footwear apparel, and accessories in Australia and New Zealand. Recently, the company's director, Timothy Dodd, has undergone a change of interest in the company and has acquired 21,905 ordinary shares at a value of $2.19 / share.

FY21 Financial Performance:

• Increase in Sales- The company has recorded total sales growth of 19.9% to $1.14 billion in FY21, compared to FY20, depicting the strong growth in contractable customers from 1.6 million to 8.4 million customers and double-digit LFL growth.
• Strong EBITDA Performance- The company has delivered an improved EBITDA by 19.3% to $242.01 million in FY21 against $202.87 million in FY20.
• Robust Bottom-line Growth- In FY21, the company has reported a robust net profit of $76.92 million, reflecting an increase of 38.6% from $55.51 million in FY20. The continuous focus on VIP customers, Vertical and Virtual stores, integrated digital and store operating models, has driven the record profit.
• Liquidity Position- It ended the period with a liquidity including cash on hand and undrawn debt facilities of $133 million and net debt of $67 million as of 30 June 2021.

Operating Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Liquidity Risk- The company requires sufficient liquidity to meet the financial obligation, operational activity and mitigate the working capital risks.
• Impact of COVID-19 pandemic- The company had a significant effect due to the pandemic on customers offering, supply chain, staffing that impacted its operations and still the uncertainty prevails.

Outlook:

• The company’s vertical owned brand sales have targeted to achieve over $70 million of sales in FY22. Further, it signed a new distribution agreement for Herschel and HOKA and further Skechers agreement has been extended to 2032.
• It focuses on margin growth through vertical owned brands and specially to grow and develop the StyleRunner brand.
• The company is strategizing to ramp up the opening of 40 stores by Christmas 2022 and, moreover, targeted 60+ stores network in Australia and New Zealand within the next three years.
• Further, its objective is to continue investing in its digital sales capability and grow its online sales to 30% of total sales and reach virtual sales of more than $10 million.
  

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: Despite the COVID-19 impact on retail stores, the company delivered strong financial performance and declared an increased full-year dividend by 21.6% to 11.25 cents per share in FY21. The stock of AX1 is trading below its average 52-weeks' levels of $1.510-$3.080. The stock of AX1 gave a negative return of ~7.92% in the past one week and a positive return of ~37.50% in the past one year. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium to its peers' average, considering strong financial performance and a higher gross margin. For the purpose of valuation, peers such as Briscoe Group Ltd (ASX: BGP), Kathmandu Holdings Ltd (ASX: KMD), Nick Scali Ltd (ASX: NCK) have been considered. Considering the current trading levels, indicative upside in valuation, strong liquidity position, strategic investment, increase in number of stores, enhancing target market, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $2.090, down by 1.416% as on 22 September 2021.

AX1 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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