Accent Group Ltd

Going Strong with exclusive distribution rights: Accent Group Ltd.’s (ASX: AX1) stock plunged 3.79% on June 08, 2018 with slight change in market sentiments given the already high run-up while the retail stocks continued to feel pressure from the competitors and the group also struggles to maintain its market share. Australian retailers are feeling the heat due to online retail giant Amazon.com, that has planned to open a new 43,000 square metre fulfilment centre in Moorebank, South West Sydney. Further, Amazon has planned to launch its Amazon Prime membership service in Australia by mid-2018, which means that the retailers’ margins can come under pressure in order to maintain market share. However, AX1 has exclusive distribution rights for about 10 international brands across Australia and New Zealand such as Vans and Timberland, and therefore it can prevent its competitors to sell these brands on their own website or elsewhere. Further, the group can post decent earnings if the demand for these brands stays strong.


1H 18 Financial Performance (Source: Company Reports)

Another advantage with AX1 is that the shoppers prefer to buy shoes after trying it to check for comfort, fit etc. in store. The company in the first half 2018, has posted the total online sales growth of 170% on top of 100% growth delivered in FY 17. AX1 in the first half 2018 has reported 13% rise in the underlying net profit after tax. On the other hand, AX1 has successfully completed the acquisitions of both the Accent and Hype business and also completed the integration of those businesses with the company. The company has completed its transformation from an investment holding company into the regional leader in the retail and distribution of performance and lifestyle footwear. As part of transformation process, AX1 appointed Ms Celesti Harmse, Group General Counsel, as a joint Company Secretary of the company. Additionally, for the first 7 weeks of the second-half, like for like sales retail sales are up 4%, which is an improvement on the LFL performance in the first half. The unaudited, underlying EBITDA for the first seven months of 2018, against the comparable period was up 12% and is ahead of plan. AX1 for FY 18, continues to expect its dividend payout ratio to be between 75%-80% of underlying earnings per share. Meanwhile, AX1 stock has risen 56.93% in three months as on June 07, 2018 and is trading at a P/E of 25.48x. Based on the foregoing, we give a “Hold” recommendation on the stock at the current price of $ 1.525.

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