The Warehouse Group Limited

Company Overview: The Warehouse Group Limited (NZX: WHS) is one of the largest retailing groups in New Zealand. It consists of six core retail brands: The Warehouse, Warehouse Stationery, Noel Leeming, Torpedo7, 1-day and, TheMarket. Further, it has 260+ retail stores, online stores, and distribution centres in New Zealand.

WHS Details

The market capitalisation of the company stood at ~$1.13 billion on 9^th May 2022.

Looking at the past performance over FY17 to FY21, its top line grew with a compounded annual growth rate (CAGR) of 3.5%. Total Revenue of the company improved from $2,980.8 million in FY17 to $3,414.6 million in FY21. Net Income improved from $20.4 million in FY17 to $117.7 million in FY21.

Exhibit 1: Financial Statistics

Source: Analysis by Kalkine Group

Result Performance for H1FY22 (For the Half Year Ended 30 January 2022)

• The group has delivered record sales in Q2FY22, up 2.8% YoY and up 11.2% compared to pre-COVID-19 FY20 Q2.
• Notably, group sales for H1FY22 were down by 4.3% to $1,730.0 million compared to last year.
• Reported Net Profit After Tax, including unusual items, reduced by 8.2% to $50.4 million. Adjusted Net Profit After Tax stood at $48.0 million, compared to $111.0 million in the pcp prior to the repayment of the $67.6 million (before tax) wage subsidy in December 2020.
• The Group holds cash on hand of $150.0 million at the end of H1FY22 (FY21: $160.5 million) and total liquidity including cash and available facilities amounted to $480.0 million (FY21: $490.5 million.

Increase in Market Share

The Group’s market share rose +0.1 points vs LY to represent 6.1% of total retail sales despite New Zealand total retail spend declining 5.0% in H1FY22 vs H1 LY. The customers are choosing to purchase goods delivered to their homes or via the company’s Click & Collect service as its online sales rose 67.8% and within this Click & Collect increased 79.1%.

The increase in total online sales growth demonstrates an ability to better capture shifts in customer demand.

Top 10 Shareholders: 

The top 10 shareholders have been highlighted in the table, which together forms ~74.20% of the total shareholding.

Exhibit 2: Top 10 Shareholders

Source: Analysis by Kalkine Group

A Quick Look at Key Metrics: 

The company has posted a healthy improvement in both EBITDA margin and net margin over FY17-21. Its EBITDA margin rose from 5.6% to 12.7% and its net margin increased from 2.4% to 3.4%. The company has posted a significant uptick in ROE to 28.4% in FY21 from 14.2% in FY17.

Exhibit 3: Key Metrics

Source: Analysis by Kalkine Group

Outlook:

TheMarket.com platform delivered strong growth and is on track to surpass $100 million in Gross Transaction Value (GTV) by year end. Looking ahead, the group remains optimistic, however, prevailing uncertainty created by COVID-19 and the war in Ukraine is impacting the global economy as well as the New Zealand economy. Further, shipping and freight costs as well as inflation are also contributing factors for New Zealand. Additionally, the impact of Omicron variant is affecting the foot traffic in its stores across the country.

Owing to sustained uncertainty in the trading environment, the board decided to not provide full year profit guidance currently and will continue to assess this position ahead of year end. Meanwhile, the group expects its capital expenditure for the full year FY22 to remain around $135 million. Besides, the company is modernising and aligning its store footprint to cater to the changing customer behaviours and expectations.

Risks:

The company is exposed to various financial risks including, liquidity risk, credit risk, and market risk. Its overall risk management programme focuses on the uncertainty of financial markets and seeks to lessen the potential adverse effects on its financial performance. Further, the company continues to adapt its business to changing consumer behaviours as well as government regulation which are affecting its business and the retail industry.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Performance:

The stock has been valued using P/E multiple-based illustrative relative valuation and the target price so arrived reflects the potential rise of low double-digit (in % terms). A slight premium has been applied to P/E Multiple (NTM) (Peer Average), considering its record sales in Q2FY22 and robust financial position. Driven by its healthy financial position and the ability of its people to navigate the volatility over the last two years, the group remains assured of dealing with the uncertainties in H2FY22.

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.

Considering the aforementioned factors, a “Buy” recommendation has been assigned on the stock at the closing market price of $3.260 per share, down by 2.40% as of 9^th May 2022.

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.

Disclaimer

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