Is Accent Group worth $2.60 per share?

We look at Citi’s bull thesis on the retail group.

Accent rises on Trading Update

Investors bid the Accent Group (AX1) share price higher on Friday after the company provided the market with earnings guidance for the first-half of 2020.

At the time of writing AX1 was up 3.83% to $2.44 per share.

Like many e-commerce companies, Accent Group has been on a tear over the last nine months – rising in excess of 300% from the lows it recorded in March 2020.

Beyond those aggressive share price gains, the company has benefitted strongly from a shift in consumer behaviour, on Thursday saying it expected to report H1 earnings (EBITDA) of between $95 to $98 million, implying a growth rate of between 40% to 45% on a year-over-year basis.

Speaking to the trend towards e-commerce, 22.3% of total H1 sales are now comprised of digital sales – with the company noting it expects to report record digital sales of $108.1 million, implying a year-over-year growth rate of 110% – for the half.

The company noted that its earnings (EBIT) growth was expected to be comparable in the first-half.

Looking at what has underpinned this anticipated earnings performance, the company said it generated stronger sales across November and December, while like-for-like sales across the half have gained 2.7%. When excluding Auckland, Victorian, and Adelaide store performance – like-for-like sales across the half have risen a more impressive 12.3%.

Looking ahead, Accent's CEO, Daniel Agostinelli, said: 'We continue our focus on Virtual, Vertical and VIP with our growth initiatives progressing well across the board, We are well set for the significant back to school trading period across our digital, virtual and store sales channels.'

Despite the expectation of a strong first-half performance, management said it would not be providing H2 guidance given the uncertainties created by the coronavirus.

Citi eyes $2.60 price target

Following the release of that recent market update, analysts from Citi reiterated their Buy rating and upped their price target by 24% to $2.60 per share; while saying:

‘We see scope for medium-term earnings growth to be driven from i) rollout, especially new concepts such as Pivot and Stylerunner, ii) increased penetration of higher-margin vertical brands and accessories, and iii) TAF buybacks.’

Looking ahead, as a result of yesterday’s trading update, Citi upgraded their FY21, FY22 and FY22 earnings estimates by 8.3%, 6.8% and 6.3%, respectively.

Despite their bullish outlook, Citi cites ‘gross margin pressure due to a falling AUD’, ‘loss of a major distribution license’, ‘loss of sales due to inventory shortage or lower gross margins due to excess stock’ and ‘a significant slowdown in consumer footwear spending’ as some of the key risks facing the company.

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