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 – SELL at GBX 165.00

• Target Price Hit: MADE has topped our previously recommended target price, and it can face retracement from this level amid rising inflationary pressure. Moreover, the stock has yielded a return of around 23% in the past month, giving a lucrative opportunity to book profit.
• Macroeconomic Uncertainties: Reduced retail footfall amid ongoing fuel and supply issues, and the fragility of consumer confidence can derail the economic recovery.
• Technical Indicator: From a technical standpoint, MADE’s stock price is approaching towards the upper Bollinger Band, reflecting an oversold scenario. Meanwhile, 14-day RSI (~67.41) is reiterating the same.
• Overvalued Multiples: On a forward 12-month basis, key trading multiples (EV/EBITDA, Price/Cash Flow, and Price/Book) are overvalued against the median of Consumer Cyclicals sector.

Risk Assessments

• Margin Hit: 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.
• History of Losses: The Company is still not profitable, and its growth depends upon external financial resources.
• Pandemic Led Uncertainties: The recent spike in Covid-19 cases can dent the investors’ optimism and drain global supply chain.

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

 (Source: Company Website)

• Top-line Growth: During H1 FY21, MADE reported strong trading performance with 54% year-on-year growth in gross sales.
• Operational Progress: The adjusted EBITDA of £1.1 million in H1 FY21, shown a growth of £12.2 million year-on-year.
• Losses: 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.
• Order Growth: 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 has already given a remarkable growth in the past month, and the upside potential is skeptical given the widespread supply chain issues and inflationary pressure. Moreover, there are uncertainties that customers might resume spending on outdoor activities, and lockdown-fueled gains might not last for long. Therefore, it is prudent to book profit at the current levels and reinvest capital plus gains when the external environment is more supportive. The stock made a 52-week high and low of GBX 214.44 and GBX 124.00, respectively.

Based on the exceptional price gains, overvalued multiples, overbought price scenario, market uncertainties, and unfavourable valuation conducted above, we have given a “SELL” recommendation on Made.com Group PLC at the current market price of GBX 165.00 (as on 5 November 2021 at 8 AM GMT).

*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.

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