Adairs Limited

Section 1: Company Overview and Fundamentals Insights

1.1 Company Overview

Adairs Limited (ASX: ADH) operates as an omni-channel specialty retailer of home furnishings, home decoration, and home furniture products. The company operates three vertically integrated brands in the home furnishing category: Adairs, Mocka, and Focus on Furniture (Focus).

 1.2 The Key Positives, Negatives, Investment Highlights, and Risks

1.3 Top 10 Shareholders: The top 10 shareholders together form ~17.26% of the total shareholding. Vinva Investment Management Limited and Mitsubishi UFJ Financial Group Inc are holding a maximum stake in the company at ~4.95% and ~1.82%, respectively.

1.4 Key Metrics: The company has reported high operational efficiency by reporting a gross margin of 54.7% in FY22 compared to 27.6% of the industry median. Additionally, the liquidity in ADH has improved as the company reported a quick ratio of 0.43x in FY22 as compared to 0.24x in FY21. Below is captured the trend of the current ratio and EBITDA margin:

Section 2: Business Updates, Financial and Operational Highlights

2.1 Recent Updates:

2.2 Results Highlights of FY22: The recent FY22 results depicted the growth in receipts from customers that increased from AUD 554.42mn in FY21 to AUD 620.82mn in FY22.

2.3 Growth Outlook: The company spent AUD 12.2mn under capital expenditure in FY22, which was used for opening new stores, upsizing existing stores, and investing in IT and digital initiatives to support future growth.

2.4 Dividend History: ADH shows a clear track record of paying dividends in each financial year. The company issued a fully franked final dividend of 10.0 cents per share in FY22, taking the total annual dividend to 18.0 cps. 

Section 3: Key Risks and Outlook:

Section 4: Stock Recommendation Summary

4.1 Price Performance and Technical Summary

4.2 Fundamental Valuation

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is September 8, 2022. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above. 

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

Kalkine New Zealand Limited is a Financial Advice Provider (“FAP”) and is authorised by a Transitional FAP license issued by Financial Markets Authority (“FMA”) to provide financial advice. Kalkine provides only general financial advice through its research reports following a person becoming a member. The reports contain buy/sell/hold and other recommendations in relation to equity financial products. The recommendations and opinions [on this website] / [in this report] do not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions. If you act on the advice in the research reports, you may have to pay fees, expenses or other amounts (but not to Kalkine).  Further information about the complaints and dispute resolution process, as well as information about Kalkine’s duties are available on Kalkine’s website.  Please read our Financial Advice Provider (FAP) disclosure statement and Complaints Handling Guide, which are available on the website.