Vita Group Limited (ASX: VTG)

A national provider of telecommunications, computers and related products and services through retail and business channels. The company’s businesses include the Telstra ICT retail store network, Telstra Business ICT channel, and its Skin-Health and Wellness business comprising a number of brands, including Artisan Aesthetics Clinics.

Financial and Operational Highlights:  As announced on 12 November 2021, the company wrapped up the sale of its Retail Information and Communication Technology (ICT) business to Telstra Corporation Limited (ASX: TLS) for cash consideration of $110 million. ICT business contributed around 95.38% in revenue during FY21. The strategic objective behind the sale is to focus on other growth markets as its research showcased that the skin health and wellness (SHAW) category could deliver high margins and a strong growth trajectory. The SHAW segment has witnessed revenue growth of 41.5% in FY21 to $28.39 million and EBITDA line was positive to ~$1.4 million from EBITDA loss of ~$1.87million.

The company has decided to use the proceeds from the divestments to pay $0.39 per share as the first tranche of the fully franked Special Dividend on 26 November 2021 with a record date of 19 November 2021. In addition, VTG currently expects to pay the final tranche of around $0.03 to $0.06 per share on a date to be determined once the Transaction, wind-up, and other transition costs are confirmed. After paying both tranches of the Special Dividend, the remaining amount of $35 million would be used for the improvement of Artisan Aesthetic Clinics. The company’s business is exposed to a risk arising from the stiff competition in SHAW segment as it would be competing with established player in the market.

Valuation Methodology: P/CF 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 believes that the Artisan business is in a decent position to reap benefits of the growth category and the opportunities it presents in executing its corporate model The stock has been valued using P/CF multiple-based illustrative relative valuation and arrived at a correction of high-single-digit (in % terms). The company can trade at a slight discount to its peers’ average, considering the COVID-19 disruptions and transition into new business. For the purpose of valuation, peers such as Accent Group Ltd (ASX: AX1), Shaver Shop Group Ltd (ASX: SSG), Super Retail Group Ltd (ASX: SUL), and others have been considered. Considering the expected correction, sale of core business and key risks associated with the business, we give a ‘Sell’ rating on the stock at the current market price of $0.470 as on 18 November 2021, 3:55 PM (GMT+10), Sydney, Eastern Australia.

VTG Daily Technical Chart, Data Source: REFINITIV 

Note: The purple colour line in the chart depicts RSI (14-period).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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