Adore Beauty Group Limited

Section 1: Company Overview and Fundamentals

1.1 Company Overview:

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

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

1.3 Top 10 Shareholders: The top 10 shareholders together form ~78.60% of the total shareholding. QPE Growth, LP and Fairfax Height (James Alexander) hold a maximum stake in the company at ~32.51% and ~11.05%, respectively.

1.4 Key Metrics: The company has reported a high gross margin of around 33.3% in FY22 compared to the industry median of 24.9%. Further, the return on equity improved in FY22, which was around 6.6% compared to 3.4% in FY21. Below is captured the trend of the inventory turnover ratio and current ratio:

Section 2: Business Updates, Financial and Operational Highlights

2.1 Recent Updates:

2.2 Insights of FY22: During FY22, the company reported a surge in revenue from AUD 179.27mn in FY21 to AUD 199.66mn in FY22, driven by returning customers, which accounted for 70% of all revenue. Further, the gross profit increased from AUD 59.27mn in FY21 to AUD 66.54mn in FY22, supported by improved supplier terms and higher revenue base.

2.3 Strategy to Drive Long-Term Growth: The company aims to drive long-term margin expansion by focusing on three aspects that are revenue growth, improvement in gross margin and reduced marketing expenditure.

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 neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is October 28, 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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