Made.com Group PLC

Founded in 2010, Made.com Group PLC (LON: MADE) is an online furniture retailer that offers trendy and affordable home furnishings and accessories.

Investment Rationale – SEPCULATIVE BUY at GBX 128.40

• Despite mounting price pressure, Britain’s composite Purchasing Managers' Index remained steady at 54.9 in September 2021, slightly up from August 2021.
• By FY25, Made.com targets to report over £1.2 billion in gross sales with low teens adjusted EBITDA margin, supported by the promising trends in online furniture retail market.
• In FY21, Made.com is expected to generate a revenue of approximately £410 million (reflecting 65% year on year growth) with a positive adjusted EBITDA. It is also well-positioned to manage supply chain volatility.
• The UK economy bounced back in Q2 2021, reflecting a sign of recovery as the global economy reopens.
• Merck’s game changing Covid-19 pill can reduce hospitalization by half, which can bring workers back to work and reduce supply chain issues.
• com offers high quality products at attractive price points. Moreover, it has a large active customer base, and the brand is quite popular among millennials. It plans to leverage IPO proceeds to expand its homeware range and reduce the wait time between placing and delivering orders.
• From a technical standpoint, MADE’s stock price is approaching towards the lower Bollinger Bands, reflecting an oversold scenario.
• From FY18 to FY20, Made.com has maintained gross margin of over 53.2%, which is significantly higher than the industry median of 43.1%.

Risk Assessments

• The foreign exchange headwind and global freight inflationary pressures impacted the gross margin in H1 FY21. It can continue to impact the margins in H2 FY21 as well.
• The Company is still not profitable, and its growth depends upon external financial resources.
• The recent spike in Covid-19 cases can dent the investors’ optimism and drain global supply chain.

Recent News

Appointment of Joint Corporate Brokers: On 30 July 2021, the Company appointed J.P. Morgan Securities PLC and Liberum Capital Limited as its joint corporate brokers, with immediate effect.

Admission to Trading on the London Stock Exchange: On 21 June 2021, Made.com was admitted to trading post issuing 387,660,176 Shares. The offer price was set up at 200 pence per share.

Financial Highlights (for the six months to 30 June 2021, as on 14 September 2021)

 (Source: Company Website)

• During H1 FY21, MADE reported strong trading performance with 54% year-on-year growth in gross sales.
• The adjusted EBITDA of £1.1 million in H1 FY21, shown a growth of £12.2 million year-on-year.
• The reported loss before tax (including one-off IPO related P&L charges of £5.4 million) reduced from £15.2 million in H1 FY20 to £10.1 million in H1 FY21.
• The average order value grew 12% year-on-year in H1 FY21 to £244.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: EV/Sales Approach (FY21) (Illustrative) 

Conclusion

Made.com continued to gain market share across all eight markets in H1 FY21, and it witnessed robust and sustained consumer demand. It is a fast-growing business and its sales climbed in H1 FY21 despite operational difficulties, demonstrating its brand resilience. It is well-positioned to navigate the industry-wide global supply chain disruption through its flexible business model and supplier relationships. Following the gross proceeds of £100 million through initial public offer (IPO), the Group ended H1 FY21 with net cash position of £175 million. The Company has delivered impressive growth in recent years. Moreover, the resurgence in Covid-19 cases can sustain the demand for online shopping. However, there are uncertainties that customers might resume spending on outdoor activities, and lockdown-fueled gains might not last for long. Nevertheless, the Company has the potential to consolidate a fragmented market and capitalise on long-term demand trends. The stock made a 52-week high and low of GBX 214.44 and GBX 124.00, respectively.

Based on the excellent sales growth, robust active customer base, promising demand trends, supported by the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Made.com Group PLC at the closing market price of GBX 128.40 (as on 6 October 2021), with lower double-digit upside potential based on 1.40x EV/NTM Sales (approx.) on FY21E Sales (approx.).

Central Asia Metals PLC

Central Asia Metals PLC (LON: CAML) is a FTSE AIM UK 50 index listed Company that owns 100% of the Sasa zinc-lead mine in North Macedonia and 100% of the Kounrad SX-EW copper project in central Kazakhstan.

Rationale for Valuation – SPECULATIVE BUY at GBX 222.50

• Fitch Solutions anticipates higher copper prices in the long-term, as consumption will continue to outpace supply, amid the green transition.
• In H1 FY21, CAML raised dividend to 8 pence per share on the back of commodity prices boost, representing 40% of free cash flow (FCF).
• The Group is close to a debt-free milestone following the additional debt repayment in H1 FY21, reflecting the continued focus on delivering value to its shareholders.
• From a technical standpoint, CAML’s stock price is approaching towards the lower Bollinger Bands, reflecting an oversold scenario. Meanwhile, 14-day RSI (~40.81) is also reiterating the same.
• On a forward 12-month basis –EV/EBITDA, Price/Earnings, and Price/Cash Flow, valuation multiples are quite undervalued against the corresponding multiples of the Basic Materials sector.

Key Risks

• The rising Covid-19 cases due to the Delta variant has dampened the prospects of swift economic recovery. Moreover, inflationary concerns and volatile commodity prices can suppress investor sentiments.
• The US Dollar is surging on signals regarding asset tapering the US Federal Reserve, copper prices can soften.
• The copper prices can drop significantly as sluggish economic growth keeps a lid on demand.
• The factory activities are also growing at lower pace due to the resurgence in Covid-19 cases globally.

Financial Highlights (for the six months ended 30 June 2021, as on 15 September 2021)

 (Source: Company Website)

• CAML demonstrated robust financial performance in H1 FY21, driven by strong commodity prices. The Group free cash flow increased to US$48.9 million in H1 FY21 (H1 FY20: US$21.2 million).
• The Group also made early repayment of US$10 million of corporate debt facility.
• The net revenue surged to US$100.8 million (H1 FY20: US$70.8 million), while the EBITDA margin rose to 61% in H1 FY21 (H1 FY20: 56%).
• As on 30 June 2021, cash in the back stood at US$54.3 million, while there was a net debt of US$10.1 million.
• CAML is on track to meet its production guidance from Sasa and Kounrad.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

Conclusion 

CAML reported excellent financial results in H1 FY21 with FCP and EBITDA up by 51% and 131%, respectively. The Group accelerated its debt repayment and increased its dividend. The outlook for the remainder of FY21 is positive on the back of strong demand outlook. Moreover, the Company has strengthened its balance sheet and in stronger position to pursue potential acquisition opportunities.

Adjacently, the Copper industry is fundamentally strong for the long run with the advancement of green transportation and renewable energies. Moreover, the global economy is expected to recover quickly with a reduction in new Covid-19 cases and increased vaccination level, which will eventually support the copper market further. The stock made a 52-week High and Low of GBX 298.00 and GBX 158.00, respectively.

Based on the increased dividend, strong financial performance, strengthened balance sheet, supported by the valuation conducted above, we have given a “SPECULATIVE BUY” stance on Central Asia Metals PLC at the closing price of GBX 222.50 (as on 6 October 2021), with lower double-digit upside potential based on 8.67x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

*All forecasted figures and Peer information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.