Adore Beauty Group Limited

Section 1: Company Overview and Fundamentals

1.1 Company Overview:

Adore Beauty Group Limited (ASX: ABY) is an online beauty retailer that partners with beauty and personal care brands to provide an integrated content, marketing, and electronic commerce retail platform.

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

1.3 Top 10 Shareholders: The top 10 shareholders together form ~78.91% of the total shareholding. QPE Growth, LP and Height (James Alexander) Ltd. hold a maximum stake in the company at ~32.51% and ~11.05%, respectively.

1.4 Key Metrics: During FY22, the company reported a return on equity of 6.6%, which increased from 3.4% in FY21. The asset turnover ratio in FY22 was 3.45x, higher than the industry median of 0.77x. Below is captured the trend of gross margin and current ratio:

Section 2: Business Updates, Financial and Operational Highlights

2.1 Recent Updates:

2.2 Insights of FY22: During FY22, ABY witnessed a surge in active customers by 7% on a YoY basis to 872k. The revenue contribution from mobile application doubled over the year from 7.7% in 1QFY22 to 15.5% in 4QFY22. The company generates 70% of revenue from returning customers, which resulted in 48% growth in active customers in the past 2-years.  

2.3 Business Growth Strategy: ABY focused on multiple strategic priorities in FY22, such as hosted 16 virtual loyalty events that resulted in a 60% contribution in revenue from loyalty members in FY22. The company took initiatives like launching new podcasts to generate website traffic and create brand awareness. Further, ABY increased product offerings by onboarding 29 new brands in FY22. Additionally, it has launched its first owned skincare brand known as Viviology.  

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 16, 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.

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