N Brown Group Plc (BWNG)

Manchester-based N Brown Group Plc is a widely known, digital fashion retailer. They offer shoppers a wide variety of products, primarily clothes, footwear and homewares. Traditionally a mail-order catalogue business, and now around 80% of the group's total demand comes from the online. INVESCO Asset Management Limited, UBS Asset Management (UK) Ltd. and Aberforth Partners LLP are the major institutional investors in the company. (Source: Thomson Reuters).

Key Statistics
 

Recent Updates:
On February 26, 2019, the digital fashion retailer has announced the appointment of Steve Johnson as the Chief Executive Officer of the group with immediate effect.

Financial Performance – FY19 (£mn)

Source: Company filings, LSE

During the FY19, the group’s reported revenue was 0.8% lower at £914.4 mn against the previous year,and product revenue declined by 5.6% to £615.8 mn and Financial services revenue rose by 10.8% to £298.6 mn. However, the group's adjusted EBITDA surged by 7.9% to £128.0 mn against the adjusted EBITDA of £118.6 mn in FY18.Adjusted EBIDTA margin for FY19 rose to 14.0% from 12.9% in FY18, indicating strong marketing and other operational efficiencies. In FY19, adjusted operating profit accelerated by 8.2 per cent to £97.9 million against £90.5 million accounted last year in FY18.

However, digital revenue growth in the JD Williams increased by 8.8%, Simply Be revenue surged by 8.7% and Jacamo revenue increased by 5.1%.

During FY19, depreciation and amortisation expenditure surged by 7.1% to £30.1 mn, on account of historical and ongoing investment in IT system. Despite challenging and highly promotional market, the group has delivered a stable product gross margin of 52.1%.

Stock Performance – 1 Year

Daily Price Chart (as on May 03, 2019), after the market closed. (Source: Thomson Reuters)

At the closing (as on May 03, 2019), shares of N Brown Plc were quoting at GBX 139.30 and traded 8.3 points or 6.3 per cent above the previous day closing price. During the past one-year, shares have registered a 52w high of GBX 218.80 and a 52w low of GBX 81.65.

During the last one year, the stock has delivered a negative price return of 33.67%, but on a year-to-date basis, the stock has delivered a price return of 38.99%. Also, at the closing price, as quoted in the price chart, shares have traded around 11.17% above the 200-day simple moving average price, which indicates that the stock has the potential to go up further from the current price level.

At the close, Outstanding market capitalisation of Manchester-based digital fashion retailer stood at £396.25 mn and a dividend yield of the group stood at 7.58% respectively.

Valuation Methodology


Conclusion
Over the past few months, particularly since Steve became acting CEO, N Brown's strategy has shifted towards profitable growth in clothing and the exit from high-cost marketing to offline customers that was ultimately unprofitable. We anticipate that Steve will set out a more detailed vision for N Brown's clothing strategy - in its Power Brand, Traditional and secondary brands. For FY20, the group is focusing to maximising their market shares in the UK core market as online clothing and footwear markets in the UK are expected to grow by 7% in next five years, at present the group has only 4.0% market share in the womenswear market and 3.2% in the menswear market. Based on the above rationale and valuation done using the above methodology, we have given a “Speculative Buy” recommendation at the closing price of GBX 139.30 (as on May 03, 2019), based on 7.3x Price-to-Earnings (approx.) on FY20E Earnings Per Share (approx.). 

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