The Warehouse Group Limited

Company Overview: Warehouse Group Limited (NZX: WHS) operates in the New Zealand retail service sector. The Company's segments include The Warehouse, which is a general merchandise and apparel retailer with over 90 stores located throughout New Zealand; Warehouse Stationery, which is a stationery retailer with over 70 stores in New Zealand; Noel Leeming, which is a consumer electronics and home appliances retailer; etc.

WHS Details

The Warehouse Group Limited (NZX: WHS) is one of the leading retailing groups in New Zealand. The market capitalisation of the company stood at ~$1.23 billion on 10 January 2022.

Looking at the past performance over FY17 to FY21, topline and bottomline of the company grew with a compounded annual growth rate (CAGR) of 3.46% and 54.98%, respectively. Total Revenue of the company improved from $3,172.8 million in FY20 to $3,414.6 million in FY21. Net Income of the company improved from $44.5 million in FY20 to $117.7 million in FY21.

Exhibit 1: Financial Statistics

Source: Analysis by Kalkine Group

Result Performance (FY21 Ended 1 August 2021)

• Revenue up 7.6%: Revenue from continuing operations for the full year period stood at $3.41 billion, an increase of 7.6% on previous year. The increase in online shopping continued to grow with sales of $393.1 million, an increase of 5.0% on last year and accounted for 11.5% of total Group Sales. Sales that were fulfilled via Click & Collect were up 21.1% compared to the previous year, including 37.9% growth for The Warehouse brand and 9.3% growth in Click & Collect at Noel Leeming driven by the introduction of one hour Click & Collect.
• NPAT up ~165%: Net profit from continuing operations for the full year period stood at $117.65 billion, an increase of 164.7% on previous year. Net tangible assets per Quoted Equity Security for the period stood at $0.818, as compared to $0.697 at the end of the previous year.

Exhibit 2: Financial Information

Source: Company Reports, Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 74.50% of the total shareholding. Tindall (Stephen Robert) and Tindall Foundation are holding maximum stake in the company at 28.32% and 21.31%, respectively, as provided in the table below:

Exhibit 3: Top 10 Shareholders

Source: Analysis by Kalkine Group

A Quick Look at Key Metrics: The company’s gross margin, EBITDA margin and net margin for FY21 stood at 36.4%, 12.7% and 3.4%, better than the FY20 result of 32.6%, 7.9% and 1.4%, respectively implying decent fundamentals of the company. ROE for FY21 stood at 28.4%, better than the FY20 result of 10.4%, implying that the company generated better returns for its shareholders.

Current ratio for FY21 stood at 1.13x, better than the FY20 result of 1.03x, implying that the company possesses better capabilities to meet its short-term obligations than the previous year. Its Debt-to-Equity ratio for FY21 stood at 1.97x, lower than the FY20 result of 2.48x, depicting reasonable leverage position of the company.

Exhibit 4: Key Metrics

Analysis by Kalkine Group

Recent Updates:

• Recently, the company provided update for the first two months of the second quarter, where group sales were up 2.3% on FY21 and 8.6% on FY20 sales for the same period. This brought total group sales for the five months ending 2 January to $1,465.9 million, a decrease of 5.7% or $88.8 million compared to the same period in FY21, which is an improvement on the position reported in the Q1 sales update, when sales were down 14.6% or $107.7 million. Gross profit margin for the first five months of FY22 was 55bps lower than the same period in FY21 but up 132bps versus FY20.
• On 12 November 2021, the company provided Q1FY22 update, wherein it highlighted that group sales for 13 weeks to 31 October 2021 were $630.7 million, down 14.6% against the same quarter in FY21 and down 9.2% against the same quarter in FY20. This can be attributed to COVID-19 lockdown levels from 18 August – including Level 4 for two weeks New Zealand wide and five weeks in Auckland, with Auckland remaining in Level 3, and Northland and Waikato switching between Level 2 and 3 for the remainder of the quarter.

Outlook:

During the financial year 2021, the company gathered confidence over its customer-led strategy. Now, it is seeing the benefits of its transformation programme. Its investment in digital systems is expected to improve legacy systems and enable it to provide better experience to its customers. In FY21, the company introduced a new mobile-first Group eCommerce platform with The Warehouse the first brand to be migrated, and with other brands following in FY22.

Based on actual sales for the first five months of FY22, the Group expects Adjusted Net Profit After Tax (NPAT) for HY22 to exceed $40 million. This compares to $111 million in H1FY21 and $46.2 million in H1 FY 2020. The second quarter is expected to continue to trade at or slightly above the same quarter last year and this would result in sales for the half-year being circa $80 million less than FY21.

Risks:

The company is exposed to various financial risks including, liquidity risk, credit risk and market risk. Also, the company is exposed to the risks related to the COVID-19 pandemic and the related lockdowns.

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

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

Stock Performance:

The Group’s robust shipping and stock management controls have managed inventory levels while ensuring availability of key continuity and seasonal lines for customers. The Group is well positioned for the remainder of summer and Back to School trading periods.

The stock has been valued using P/E multiple-based illustrative relative valuation and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to Price/EPS Multiple (NTM) (Peer Average) considering its robust shipping as well as stock management controls as well as decent outlook.

Considering the aforesaid facts and its current trading levels, we give a “Buy” recommendation on the stock at the current market price of NZ$3.550 per share, down by 11.47% on 10^th January 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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