Accent Group Limited

AX1 Details

Substantial Growth in Digital Sales: Accent Group Limited (ASX: AX1) is engaged in a retail business in Australia. The company is a distributor of performance and lifestyle footwear. The company owns ~479 stores across 10 retail banners and distribution rights for 10 international brands across Australia and New Zealand. The company’s brand includes Athlete’s Foot, CAT, Palladium, Platypus, Skechers, Trybe, Timberland and many more. The company has delivered a substantial increase in its digital sales despite Covid-19 situation. The company has posted 110% YoY increase in its sales in 1HFY21, on the back of growth in contactable customer’s base by 800k to reach at 7.6mn. The company has posted a 53.4% growth in its site traffic in 1HFY21 and achieved ~100% more orders as compared with orders in 1HFY20.

Financial Highlights for H1FY21: AX1 has registered a 6.6% YoY sales growth in 1HFY21 to $541.3mn. The company has posted an increase in its NPAT by 57.3% YoY at 52.8mn in 1HFY21. The gross margins improved by 140 bps to 58.1% in 1HFY21 as compared with 56.7% in 1HFY20. The company has paid an interim dividend of 8.00 cents per share fully franked on 18 March 2021.  

Digital Sales Growth (Source: Company Reports)

Outlook: Digital, VIP, Virtual Sales for AX1 represents 22% of total sales in 1HFY21 and the company expects the same to be 30% of total sales over the coming period. The company is expecting to open 90 stores in FY21 and will continue to open new stores in FY22 as well. The company is expecting to surpass $20mn of Vertical product sales in FY21. AX1 will recommence its buy-back programme for its franchise TAF from late FY21 due to improved gross margins from its owned stores. AX1 currently has ~7.6mn contactable customers and it projects to take it to ~10mn customers over a period of time.

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, AX1 has decreased by 0.85% and increased by 6.91% in the last three months. The current market capitalisation of AX1 stands at ~$1.24bn as on 23 March 2021. The stock is currently trading above the average of its 52-weeks’ price level range of $0.555-$2.530. On the technical analysis front, the stock has a support level of ~$2.24 and a resistance of ~$2.41. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of a high single-digit (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering a significant growth in the digital sales segment and declaration of dividends. For the purpose, we have taken peers Nick Scali Ltd (ASX: NCK), Beacon Lighting Group Ltd (ASX: BLX), Adairs Ltd (ASX: ADH), to name a few. Considering a robust growth in digital sales, improvement in gross margins, valuation, current trading levels, we recommend a “Hold” rating on the stock at the current market price of $2.32, up by 1.31% as on 23 March 2021.

AX1 Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Kathmandu Holdings Limited

KMD Details

Rip Curl Boosts Top-Line and Bottom-Line: Kathmandu Holdings Limited (ASX: KMD) is engaged in retailing of its clothing line and equipment for travel and adventure. The company's is mainly present in New Zealand, Australia, and the UK. It offers a range of attires, including waterproof jackets, fleece jackets, merino apparel, footwears and offers equipment, including packs, bags, sleeping bags, tents, travel accessories and camping accessories. The company’s robust performance in 1HFY21 was supported by strong performance from its associated brand Rip Curl amid Covid-19 situation. Rip Curl has witnessed a growth of 86.1% and 173.9% in its top-line and EBIT, respectively in 1HFY21, on a year over year basis. However, due to shut down of many stores across Australia and New Zealand, during Covid-19 situation, Kathmandu’s performance has been suffered severely.

Financial Highlights for H1FY21: KMD Group has registered an increase in its revenues by 12.9% YoY at NZ$410.7mn in 1HFY21, on the back of robust performance from the Rip Curl brand amid Covid-19 situation. Rip Curl has also contributed NZ$48.7mn EBITDA towards the group’s EBITDA of NZ$95.4mn in 1HFY21 (19% YoY growth).

Dividend Declaration: The company has announced a dividend of NZ 2.0 cents per share fully franked for Australian shareholders. The company has announced 21 May 2021 as its record date and 4 June 2021 as its payment date.

EBITDA Growth (Source: Company Reports)

Outlook: KMD is planning for key proposals in 2HFY21 to increase its sales by connecting to its customers. Rip curl will be implementing a loyalty programme and Oboz will be launching direct to consumer online store. Kathmandu continues to invest in personalisation and data analytics. The company is expecting a strong order book for all its associated brands as compared with Pre-Covid-19 order books. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, KMD has increased by 2.91% and by 5.55% in the last three months. The current market capitalisation of KMD stands at ~$804.71mn as on 23 March 2021. The stock is currently trading above the average of its 52-weeks’ price level range of $0.450-$1.360. On the technical analysis front, the stock has a support level of ~$1.13 and a resistance of ~$1.27. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of high single-digit (in % terms). We believe that the company can trade at slight premium as compared to its peer median, considering a robust contribution from Rip Curl towards KMD’s top-line and bottom-line and declaration of dividends for its investors. For the purpose, we have taken peers Accent Group Ltd (ASX: AX1), Shaver Shop Group Ltd (ASX: SSG), to name a few. Considering KMD has registered an increase in top-line and bottom-line during 1HFY21, dividend declaration, decent outlook, valuation, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $1.24, up by 9.251% as on 23 March 2021.

KMD Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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