Temple & Webster Group Ltd

TPW Details

H1FY21 Performance Update: Temple & Webster Group Ltd (ASX: TPW) is engaged in the retailing of furniture and homewares in Australia. The company posted decent financial performance during the period with a robust increase in top-line.

• Revenue grew by ~118% to $161.6 million in H1FY21, compared to $74.1 million in H1FY20. The growth was achieved on the back of decent performance across all categories, geographies, channels, and demographics.
• It reported an EBITDA of $14.8 million during the period, reflecting an increase of ~556% on the pcp at $2.3 million.
• TPW ended the period with a comfortable cash position of $85.7 million with no debt on the balance sheet.

Trend in Cash & Short-term Investments (Source: Analysis by Kalkine Group)

Trading Update: The company continued to deliver decent performance in Q3FY21 and reported an increase in revenue by ~112% on the pcp. The number of active customers reached ~750k during the end of the quarter. Revenue in April 2021 grew by over 20% on the pcp.

Key Risks: The company's line of business and operations depends on the smooth functioning of its technological platforms. Any impact on it could pose a short-term profitability risk to the earnings.

Outlook: TPW is of the view that the future prospects are positive for the company, with its core furniture and homewares market witnessing a gradual shift towards online. In the long term, it expects higher levels of profitability owing to increased benefits of scale in its operations. The company's management has updated that it will be holding the full year 2021 results briefing for investors and analysts on 27 July 2021.

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: As per ASX, the stock of TPW is trading above its average 52-weeks’ levels of $7.32-$14.050. The stock of TPW gave a negative return of ~1.12% in the past nine months and a positive return of ~23.33% in the past three months. It has a support level of $9.88 and a resistance level of $13.39. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some premium to its peer average EV/Sales (NTM trading multiple), considering the impressive growth in top-line, strong balance sheet and optimistic sector outlook. For this purpose, we have taken peers such as Cettire Ltd (ASX: CTT), Adore Beauty Group Ltd (ASX: ABY), Adairs Ltd (ASX: ADH), to name a few. Considering the expected upside in valuation and current trading levels, robust increase in top-line and EBITDA, comfortable cash position and increased traction in online retailing, we recommend a ‘Hold’ rating on the stock at the current market price of $11.44, up by ~1.149% as on 22 July 2021.

TPW Daily Technical Chart, Data Source: REFINITIV

Nick Scali Limited

NCK Details

Discussion on Potential Acquisition: Nick Scali Limited (ASX: NCK) is engaged in the sourcing and retailing of household furniture and related accessories. As per a recent update, the company has confirmed that it is in non-exclusive discussions with Greenlit Brands in regard to a potential acquisition of the business of Plush Sofas.

Trading Update:

The total written sales orders for the group grew by ~52% in H1FY21 and the positive trading momentum has continued in Q3FY21.

• It reported a growth in total written sales orders of ~50% through Q3FY21. It includes same store written sales orders growth of ~41%.
• Written sales orders grew by ~242% in April 2021, compared to April 2020 which was impacted by store closures.
• Despite the challenges of container availability, FY21 year-to-date sales revenue grew by ~44% to the end of April, and the momentum is likely to continue through Q4FY21.

Historical Trend in Revenue (Source: Analysis by Kalkine Group)

Key Risks: The company is prone to the risk of obsolete inventory as a result of an increase in inventory levels.

Outlook: NCK expects FY21 EBITDA to be approximately ~$120 million and anticipates NPAT to be in the range of $78 million to $80 million, reflecting an increase of ~85% to ~90% on the prior year. The order banks remain to be elevated, which provides the company revenue comfort in FY22.

Valuation Methodology: P/E 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 company has 61 showrooms in Australia and New Zealand as of 4 May 2021 and is planning to have at least 86 showrooms across these geographies. As per ASX, the stock of NCK is trading closer to its 52-week high price of $12.56. The stock of NCK gave a positive return of ~86.160% in the past one year and a positive return of ~15.72% in the past one month. It has a support level of $10.89 and a resistance level of $12.56. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price with a correction of high single-digit (in % terms). We believe that the company can trade at a slight premium to its peer median P/E (NTM trading multiple), considering the growth in total sales, discussions of potential acquisition of Plush Sofas and optimistic guidance. For this purpose, we have taken peers such as Lovisa Holdings Ltd (ASX: LOV), JB Hi-Fi Ltd (ASX: JBH), Briscoe Group Ltd (ASX: BGP), to name a few. Considering the current high trading levels, recent rally in the stock price and decrease in asset turnover ratio, we suggest investors to book profits and give a ‘Sell’ rating on the stock at the current market price of $12.550 as on 22 July 2021, 12:16 PM (GMT+10), Sydney, Eastern Australia.

NCK 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.

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