The Warehouse Group Limited

WHS Details

Double Digit Decline in Third Quarter Sales: The Warehouse Group Limited (NZX: WHS) has evolved from a single The Warehouse store to become one of the leading retailing groups in NZ.

For the third quarter ended 26^th April 2020, the company reported unaudited retail sales of $586.3 million, down $128.1 million or 17.9% as compared to the same quarter last year. The Warehouse segment recorded sales of $297.3 million, down by 23.0% on the same quarter last year, Warehouse Stationery registered sales of $64.5 million, down by 9.8% on the same quarter last year, Noel Leeming recorded sales of $193.5 million, down by 10.9% on the same quarter last year and Torpedo7 recorded sales of $32.0 million, down by 18.3% on the same quarter last year.

There has been a significant impact on the business throughout COVID-19 alert levels 4 and 3. Before COVID-19 alert level 4, retail sales for the third quarter, up to and including 25 March 2020, were up 18.8% on the prior comparable period. On April 7, the company claimed $67.7 million under the employee subsidy scheme. The split by brands was $52 million to the Warehouse Limited, $12.1 million to Noel Leeming, $3.2 million to Torpedo7 and $0.4 million to the TheMarket.com

For the half-year ended 26^th January 2020, the company reported net profit after tax of $46.2 million, up 16.7% on the prior corresponding period. Group retail sales were up 2.6% to $1,683.4 million.

1HFY20 Performance (Source: Company Reports)

Outlook for Full Year: The company continues to assess the impact of the COVID-19 pandemic on financial performance. FY20 adjusted net profit after tax is expected to be in the range of $75 million to $77 million, subject to no material changes in trading conditions. The company is heavily caveating this expectation given the potential effect on the economy and business of necessary measures the government may implement to control and mitigate the spread of COVID-19.

Valuation Methodology:

EV/EBITDA Based Relative Valuation

EV/EBITDA Based Relative Valuation (Source: Refinitiv (Thomson Reuters)), NTM-Next Twelve Months

Note: All forecasted figures and peers have been taken from Thomson Reuters

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands, yellow lines are retracement lines and orange colour dotted line is Parabolic SAR.

The stock while remaining in uptrend, made the high of $2.97 and from there it was caught under bearish trap, pushing the stock down to the low of $1.47. From the low, the stock moved up close to 61.8% retracement level of $2.40 but could not hold on positive momentum and slided down to 38.2% retracement level of $2.04 but gave close around 50% retracement level of $2.27, in the previous week trading session. The stock is showing little momentum in the on-going week with flattish close.

Technical indicators such as MACD with bearish cross-over but with flattish curve at the end, and RSI with 43 reading but flattish curve at the end, largely suggest flattish momentum for the stock.

Going forward, the stock may have good resistance at 61.8% retracement level of $2.40 while support could be at 38.2% retracement level of $2.04.

Stock Recommendation: Between FY 2015- FY 2019, the company has registered CAGR of 2.56% in top-line. Therefore, its revenue-generation capabilities might help the overall company to achieve its long-term growth objectives. Notably, its gross profit has grown at a CAGR of 2.79% during the same time period. We have valued the stock using a relative valuation method i.e. EV/EBITDA based valuation and have arrived at a target price of lower double-digit growth (in % terms).

Considering the expected upside, we give a “Hold” rating on the stock at the current market price of NZ$2.180 per share, down by 0.46% on May 12, 2020.

WHS Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

Enprise Group Limited

ENS Details

Datagate Reports Strong Growth in ARR: Enprise Group Limited (NZX: ENS) is an investment vehicle for high-growth tech companies that complement its core ERP capability. The company has a market capitalisation of $9.859 million as on 12^th May 2020.

For the year ended 31^st March 2020, Datagate’s annualised recurring revenue (ARR) stood at $1.1 million (NZD) up 133% on last year and 31% in the quarter. The total signed customers increased from 73 to 95 up 30% with another 10 customers added this April. International customers also increased from 40 to 70.

Recurring Revenue and Customer Count (Source: Company Reports)

ENS Raises Stake in iSell: The company has issued new ENS shares for iSell shares that has increased its holding to 46.6%. iSell is a quoting system used by the information technology reseller market in Australia, New Zealand, and the U.K. At 31^st December 2019, iSell had 133 customers using IT Quoter cloud, this is an increase of 49 customers from the investor update at 20^th August 2019. 112 customers are still to be migrated from the legacy version. The company has also issued 2,854,649 new Enprise shares in return for 52.91% of Kilimanjaro Consulting Pty Limited as per the put option deed dated 29 August 2017 and approved at the shareholders meeting on 27 October 2017. The company therefore takes 100% ownership of Kilimanjaro Consulting Pty Limited.

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands, yellow lines are retracement lines and orange colour dotted line is Parabolic SAR.

The stock has broadly been trading in the range, provided by 20 period SMA on the upside and lower Bollinger Band on the downside.

Technical tools such as MACD with bearish cross-over but with flattish curve at the end, and RSI with 38 reading but with flattish curve at the end, largely suggest flattish momentum.

Going forward, the stock is likely to trade in the existing range whereby resistance will be at $0.72 while support will be at $0.50.

Stock Recommendation: In the past 6 months, stock of the company has witnessed a fall of 31.7%. We advise the investors to wait for the stock price to stabilize and for some growth catalysts which could drive performance of the stock moving forward. In 1HFY20, the company’s gross margin stood at 88.7% as compared to 1H FY 2019 figure of 91.7%.

Considering the aforesaid facts, we have a watch stance on the stock at the current market price of NZ$0.620 per share on May 12, 2020.

ENS Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

Disclaimer

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