N Brown Group PLC

N Brown Group PLC (LON: BWNG) is a FTSE AIM All-Share listed clothing & footwear digital retailer that employs over 1,800 people across the UK.

Investment Rationale – SPECULATIVE BUY at GBX 38.12

• Strong Fundamentals: In the H1 FY22 update, BWNG demonstrated growth in adjusted EBITDA and statutory profit before tax, while it also reduced the adjusted net debt by 34.7% year-on-year. It reflects that the Company’s strategic transformation has delivered strong momentum in product revenues, and it has a robust balance sheet to position the Company well for the future.
• Improved Market Dynamics: British retailers are overwhelmed with strong pre-Christmas demand despite the price inflation, while the volume of payment transactions on the UK Black Friday was encouraging.
• Technical Indicator: From a technical standpoint, 14-day RSI (~27.58) is in the oversold territory, while the stock price has gone below the lower Bollinger Band.
• Undervalued Multiples: On a forward 12-month basis – EV/Sales, EV/EBITDA, Price/Earnings, Price/Cash Flow, and Price/Book valuation multiples are quite undervalued against the median of Speciality Retailers sector.

Risk Assessments

• Covid-19 Pandemic: The concerns related to the Omicron variant has prompted tight border controls and can impact the retailers.
• Subdued Consumer Confidence: There is acute pressure on consumer disposable income levels amid rising fuel price concerns and inflationary pressure.

Financial Highlights (for the 26 weeks ended 28 August 2021, as on 8 October 2021)

 (Source: Company Website)

• Revenue Growth: The overall product revenue grew 3.3% year-on-year in H1 FY22, reflecting the benefit of strategic transformation.
• Customer Base: The active customers also grew in Q2 FY21, demonstrating the impact of improving marketing outreach and product offers.
• Robust Balance Sheet: The adjusted net debt was reduced to £268.3 million at the end of H1 FY22, while the Company reported a net cash balance of £41.9 million.

Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative) 

Conclusion

N Brown has shown strong growth in strategic brands and delivered overall product revenue growth with the increase in active customer base. Post its recent fundraise; it has accelerated strategic investments in brand and product to sustain the strong momentum. It also witnessed a stabilization in the financial services revenue, while the Company maintained a solid state of the balance sheet to drive a stronger future. The stock made a 52-week high and low of GBX 81.60 and GBX 36.34, respectively.

Based on the profit growth, stronger balance sheet, encouraging market dynamics, and favourable valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on N Brown Group PLC at the current market price of GBX 38.12 (as on 30 November 2021, at 8:05 AM GMT), with lower double-digit upside potential based on 6.51x Price/NTM Earnings (approx.) on FY22E 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.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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