Cettire Limited

Company Overview: Covering over 500 designers’ products and brands like Gucci, Prada, Burberry, Bvlgari, Versace, Coach, Dior, Saint Laurent and Moncler, Cettire Limited (ASX: CTT) is a global online retailer. It offers a selection of in-demand personal luxury goods to consumers through its websites. The company was listed on ASX in December 2020.

CTT Details

Global Expansion and Customer Expansion: Cettire’s expansion strategy through JD.com in Mainland China and thereby capturing a total of ~25% by 2025 is in the cards. The company shower sheer resilient growth in the active customers and revenue during 1HFY22:

Bird’s Eye View of 1HFY22:

• Revenue: Due to ~208% increase in its active customers and stable gross revenue per active customer, the company posted an increase of ~192% Y-o-Y in its gross revenue, while the sales revenue contributed ~181% Y-o-Y hike and reported at ~$113.7 million for 1HFY22 as compared to ~$40.5 million in 1HFY21.
• Profitability: Due to heavy increase in its Advertising & Marketing expenses aka Customer Acquisition Cost (CAC) and merchant fees, the company converted its EBITDA negative - ~$9.9 million in 1HFY22 versus positive EBITDA of ~$4.8 million in 1HFY21. Thus, the company reported ~$8.3 million as its statutory net losses for the first half – a ~460% decline from NPAT of ~$2.30 million in 1HFY21.
• Margins: CTT’s product margin increased ~178% from ~$15.39 million in 1HFY21 to ~$42.73 million in 1HFY22 and delivered margin increased by ~118% from ~$11.35 million in 1HFY21 to ~$24.71 million in 1HFY22, by leveraging:

            i. Units of Economics (dynamic pricing system) – the system uses proprietary algorithms which calculates real-time price analysis across supplier network.

            ii. High Average Order Value (AOV/yield) – lead to rise in the      repeat customers spend, increasing the margin and also increased its LTV (Lifetime Value to Customers).

• Balance Sheet Items: CTT’s strategy of going capital light business and attractive working capital profile, made a ~43% hike possible in its operating cashflow and reported the same as ~$12.3 million in 1HFY22. Along with zero debt, the company ended its half-yearly accounts of 1HFY22 with the cash and cash equivalents as of 31^st December 2021 of ~$55.5 million versus ~$47.1 million as of 30^th June 2021.
  

CUSTOMER IS THE KING: When the world was having a setback because of COVID-19, CTT continued to deliver an extraordinary increase in its sales by engaging customers, scalability of capital light and high cash generating business model and gaining over their proprietary technology platform. It managed to get a decent number of 208,700 (~208% hike on pcp basis) in its customers in 1HFY22 by focussing on following strategies:

• Retention - the main strategy:

           i. Doings: The company provides customers fulfilment cycle, order management automation, global logistics and customs compliance, returns management, automate reverse logistics, etc. towards its efficient and effective operations thereby driving customer satisfaction and their retention.

           ii. Results: The company is confident about its market acceptance by witnessing its repeat customers. The same was accounted as ~46% of gross revenue in 1HFY22 versus ~34% in 1HFY21, with higher average spent per order and increased order frequency.

• Customers’ Acquisition – not to be overshadowed by the former strategy:

            i. Doings: To gain new customers while maintaining the gold coming from olds, is what CTT wish for. The company is going aggressive on its marketing and advertising spending per customer – which is also known as Customer Acquisition Costs (CAC).

           ii. Results: The marketing expenses increased substantially from ~$3.86 million in 1HFY21 to ~$25.87 million in 1HFY22 to promote the brand among new customers and new storefront. Its pre-IPO CAC was reported as ~$76, which had increased to ~$129 per customer post-IPO.

Top 10 Shareholders: The top 10 shareholders together form around 65.70% of the total shareholding, while the top 3 constitute the maximum holding. Mintz (Dean) and Cat Rock Capital Management LP are holding maximum stake in the company at ~49.43% and ~8.71%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics:  The company has reported a substantial increase in its current ratio from last year at 0.87x to 2.53x in FY21. Cash Balance enhances the company’s liquidity from ~$4.67 million in FY20 to ~$47.13 million in FY21.

Liquidity Profile & Profitability Metrics (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the following risk factors and their mitigations:

1. Logistics and Supply Chains: The company provides multiple automated techniques to maintain its customers, but COVID-19 might affect the same and hamper its operations and revenue.
2. Fluctuations in Demands and Sentiments: Due to the changes in customers’ preferences and sentiments, CTT might face a shift in its regular customers and additions in new. As the taste becomes dynamic with the change in geography, it might also become a problem to crack.
3. Technology Risk: The current business is quite an efficiency working by using dynamic algorithms and technology and is dependent on the ease its interface and technology (website and app) provides to its customers. Its failure of regular upgradation and improvement in its interface might affect the shift in usage and customer retention.
4. COVID-19 and Omicron Variant Risks: Due to COVID-19 and the new variant, the company can get impacted by the lockdown regulations, which might affect its offline sales.

Outlook: The world is expected to behold a Total Addressable Market (TAM) of ~$600 billion for personal luxury goods, where the company suggests its Serviceable Available Market (SAM) as ~$150 billion. Mainland China, is expected to be the world’s largest market for the same by 2025, represents a total of ~25% of global market. With a prospective global expansion strategy, CTT joined hands with JD.com (Chinese leading E-commerce platform, holds 550 million active customers) on 7^th February 2022. Together they expect to capture the market and offer the services by 2HCY22 in Mainland China.

With a happy opening of January 2022, CTT is in awe with a ~242% increase in unaudited gross revenue on pcp basis. And looking forward, besides China, CTT continues to penetrate the market in the UK, US and Australia by following:

• No Inventory Business Model
• Capital Light Model
• Technology Driven DNA enabling exceptional scalability
• Proprietary Technology for customer acquisition and retention

Global Market (Source: Analysis by Kalkine Group)

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As per ASX, the stock of CTT is trading below its 52-weeks’ average levels of $0.715-$4.805. The stock gave a positive return of ~14.78% in the past six months and a positive return of ~50.00% in the past nine months. The stock has been valued using EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at some premium to its peers’ average multiple, considering the global expansion strategy mainly in Mainland China, increasing revenue from both existing and additional customers added and the CAC, pricing, and technology strategy it has in future plans. For the purpose of valuation, few peers like Kogan.com Ltd (ASX: KGN), Marley Spoon AG (ASX: MMM), Mad Paws Holdings Ltd (ASX: MPA) and others have been considered. Considering the expected servicing TAM, JD.com synergy, upside potential in valuation, current trading levels, CTT’s customers’ expansion and retention strategy through customer satisfaction and provision of best technology to customers and merchants, hopeful long-term outlook, geographical catch, and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $2.65, 01:10 PM (GMT+10), Sydney, Eastern Australia, (as on 8^th February 2022).

CTT Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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

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