0R15 9025.0 0.0% 0R1E 9410.0 0.0% 0M69 None None% 0R2V 247.99 9682.643% 0QYR 1567.5 0.0% 0QYP 439.3701 -2.9016% 0RUK None None% 0RYA 1597.0 1.2682% 0RIH 195.55 0.0% 0RIH 191.4 -2.1222% 0R1O 225.5 9683.0803% 0R1O None None% 0QFP 10475.8496 107.8542% 0M2Z 252.573 0.2373% 0VSO 33.0 -7.3164% 0R1I None None% 0QZI 622.0 0.0% 0QZ0 220.0 0.0% 0NZF None None% 0YXG 222.05 -4.1318%
Joules Group PLC (LON: JOUL): Well-positioned for sustainable growth after encouraging recent trading update
Joules Group PLC is a FTSE AIM All-Share listed retailer, which is involved in the design and sale of lifestyle clothing, related accessories, and a range of homeware products through a multi-channel business structure comprising of retail stores, e-commerce, wholesale, county shows and events. It was established in 1989 in Britain by Tom Joules, and presently, it is a premium lifestyle brand operating in the UK and internationally. It designs and sells clothes, footwear, and accessories for men, women, and children.
The Company operates around 128 stores in the UK and having a well-established wholesale business with more than 2,000 stockists worldwide. It serves with distinctive brands and unique products that are designed in-house. In FY20, 56.6% of total retail sales were generated from E-commerce channel, while International sales (outside the UK) contributed 15.5% of total sales.
(Source: Presentation, Company Website)
Growth Prospects and Risk Assessment
Joules has responded effectively to Covid-19 crisis and remained resilient with its strong brand recognition and increasingly relevant products. It has a robust financial position and liquidity headroom to pursue growth opportunities. In the first nine-weeks of FY21, the Company witnessed a 70% increase in the demand as compared to the same period of the last year. All stores have now reopened and performing ahead of market expectations. As of 30 August 2020, it had liquidity headroom of £57 million, which was significantly ahead of management expectations.
Overall, the Company is well-positioned to deliver long-term growth with a flexible business model, well-invested infrastructure, and customer growth headroom. In FY21, the Company plans to focus on driving digital sales and leverage US operational enhancements to broad customer reach and diversify revenue streams.
(Source: Refinitiv, chart created by Kalkine Group)
(Source: Refinitiv, chart created by Kalkine Group)
However, there are certain risk and uncertainties to the business. The Covid-19 pandemic and its implications have been disrupting the supply chain and reducing customer demand due to general mobility restrictions. Moreover, the deterioration of the UK economy can adversely impact consumer confidence and spending on discretionary items. Adjacently, increasing competition could impact sales and profits. Furthermore, the Company is also exposed to foreign exchange fluctuations. The business performance is also dependent on new compliance regulations, Brexit, and IT security concerns.
Industry Outlook Dynamics
As per Statista, the market size of the fashion retailing sector shall reach nearly US$664 billion in 2020, and it is projected to reach around US$953 billion by 2024, representing a CAGR of 9.4% between 2020 to 2024. The largest segment of the market is Apparel, with an expected market volume of US$445 billion in 2020. The key trends that will influence the market include internationalisation of markets, improvising service offerings, the emergence of the e-commerce channel, private brand expansion, increasing adoption of luxury lifestyle, increasing advertising strategies, rising per capita income and favourable demographics.
Key Fundamental Statistics
Key Shareholders Statistics
FY20 Key Performing Indicators (KPI’s)
(Source: Company Website)
A Glimpse of Business Segments (FY20)
(Source: Company Website)
Q1 FY21 Trading Update (covering the 13 weeks from 1 June 2020 to 30 August 2020, as on 23 September 2020) – Strong e-commerce performance
Financial Highlights (for the 53-week period ending 31 May 2020 (FY20), as on 6 August 2020)
(Source: Company Website)
Financial Ratios
Reported profitability metrics for the financial year 2020 were lower against the corresponding period of the last year, but it had generated a decent revenue and showed better control over the expenses. On the liquidity front, the current ratio was lower than the industry median of 1.69x, but it has sufficient current assets to pay short-term obligations and robust liquidity profile to tackle the challenging market dynamics. On leverage front, the debt-equity ratio was 1.62x, which was higher as compared to the industry median of 0.62x, reflecting that the Company is more leveraged as compared to the industry.
Share Price Performance Analysis
(Source: Refinitiv, chart created by Kalkine Group)
On 20 October 2020, at the time of writing (before the market close, at 9:48 AM GMT+1), Joules Group Plc shares were trading at GBX 98.51, up by 1.55% against the previous day closing price. Stock 52-week High was GBX 287.25 and Low of GBX 32.80, respectively.
From the technical standpoint, 14-day RSI (oversold zone) is currently supporting an upside move (around 37.36 level), which means the stock price could increase in the short term. Also, MACD line is placed above the central line, indicating a bullish setup.
In the last month, Joules Group share price has delivered 29.33% return as compared to the 27.63% return of FTSE AIM All-Share index, which shows that the stock has outperformed the index during the last month.
Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)
Business Outlook Scenario
Joules has performed ahead of the Board’s Covid-19 downside scenario in terms of both trading and liquidity headroom since the UK entered a lockdown, which shows resilience and flexibility of the business model. However, consumer confidence is likely to be dampened in the short-term as the market emerge from the initial shock of the pandemic. Despite this, long-term potential and business prospects appear to be bright on the back of the multi-channel business model, loyal customer base and increasing digital sales.
Moreover, the Group intends to continue to conservatively manage its cost base until there is substantial visibility of demand across channels. Overall, Joules is highly relevant, differentiated, and well-positioned brand to meet the evolving consumer priorities. It has a clear strategy to expand both in the UK and internationally with its capital-light wholesale and digital channels. Since reopening, it has experienced higher levels of conversion when compared to pre-lockdown and witnessed improved footfall trends. Therefore, Joules seems to be well-positioned to adapt to changing consumer behaviour and grab upcoming market opportunities.
(Source: Presentation, Company Website)
Considering the signs of recovery, decent operating & financial performance, high level of cash generation capabilities, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Joules Group at the current price of GBX 98.51 (as on 20 October 2020, before the market close at 9:48 AM GMT+1), with lower-double digit upside potential based on 0.61x EV/NTM Sales (approx.) on FY21E Sales (approx.).
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
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