MyDeal.com.au Limited

Company Overview: MyDeal.com.au Limited (ASX: MYD) operates an online retail marketplace and is focused on home and lifestyle goods such as furniture and homewares. Its platform has over 6 million product SKUs listed across over 2,000 categories. The company has over 1,800 sellers on its platforms.

MYD Details

Robust Increase in Sales Driven by Increase in Active Customer Base: The company has a strong capital-lite business model, which is scalable in nature. Its proprietary technology platform provides a seamless customer experience which adds to its competitive advantage. MYD reported impressive growth in gross sales and also posted strong momentum in its private-label performance during FY21.

FY21 Financial Overview:

The company reported decent traction in sales during the year with improvement in sales and growth in active customers.

• Gross sales grew by 111.1% to $218.1 million in FY21, compared to $103.3 million in FY20. The growth in sales was aided by a substantial increase in active customer base, which grew by ~83% to 894k as of 30 June 2021.
• Orders from repeat customers increased to 59.4% in Q4FY21.
• Decent momentum in the private label with gross sales of $8.8 million in FY21, reflecting an increase of 43.1% over the prior year.
• Gross profit grew by 118.6% to $33.3 million in FY21, aided by revenue recognition of private label sales.
• Operating costs increased during the year on the back of increase in advertising spends in order to support the Group’s customer acquisition strategy.

The company ended the year with a strong balance sheet with cash position of $42.7 million as of 30 June 2021.

Trend in Cash & Equivalents (Source: Analysis by Kalkine Group)

Increased Traction in Key Metrics:

• The company has a diversified product range with a focus on the Furniture and Home & Garden segment.
• There has been growth in active customers with 1.5 million transactions and 2.1 million products shipped. The average order value stood at $143.
• MYD continues to witness improvement in the conversion of site visits to transaction, and also new customers continue to be profitable from the first purchase itself.
• Sales have also been aided by increasing customer loyalty, with the average number of orders per customer increasing to 1.7x in FY21.
• Growth in app downloads has given a push to sales with a revenue mix of 10% in FY21.

Top 10 Shareholders: The top 10 shareholders together form around 87.01% of the total shareholding, while the top 4 constitute the maximum holding. Senvirtne (Sean Amila) and Aavasan Pty. Ltd. are holding a maximum stake in the company at 49.05% and 19.87%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics:  The company reported gross margin of 87.1% in FY21, compared to the industry median of 32.6%. There was a significant improvement in the leverage profile with debt-to-equity ratio at ~0.01x in FY21, from a level of ~3.22x in FY20.

Growth Profile and Liquidity Profile (Source: Analysis by Kalkine Group)

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

• Financial Risk: The Group is exposed to currency risk, interest rate risk, credit risk and liquidity risk.
• Technology Risk: The company’s line of business is dependent on its platform performance and technological expertise to create value for its customers. Any challenge on the technological front might impact the operations and performance of MYD.
• Inventory Risk: It is prone to the risk of excess inventory or inventory being obsolete if held for longer time frames.

Outlook: MYD has an opportunity to leverage on the e-commerce boom as the Australian e-commerce market remains significantly underpenetrated when compared to the US and UK markets. The total Australian Household Goods market is pegged at $67 billion. The company’s focus is on increasing market share through the delivery of an affordable range of products and builds a loyal customer base. FY22 has started on a strong note with growth in the first 8 weeks compared to the pcp.

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 a recent announcement, the company has refreshed its brand identity in order to accelerate its growth initiatives through multi-channel campaign. As per ASX, the stock of MYD is trading below its average 52-weeks’ levels of $0.520-$2.200.   The stock of MYD gave a positive return of ~15.74% in the past one month and a negative return of ~31.30% in the past six months. The stock has been valued using an 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 a slight premium to its peers’ average, considering the impressive growth in top-line, strong balance sheet position and refreshed branding strategy. For the purpose of valuation, few peers like Cettire Ltd (ASX: CTT), Wesfarmers Ltd (ASX: WES), Temple & Webster Group Ltd (ASX: TPW) have been considered, which comes under e-commerce retail space. Considering the expected upside in valuation & current trading levels, robust increase in gross sales & active customers, increase in sales of private label, decent cash position and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.72, (as on 31 August 2021, 09:53 AM (GMT+10), Sydney, Eastern Australia).

MYD 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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