Universal Store Holdings: More growth in store
About the author:
- Author name:
- By Josephine (Jo) Little
- Job title:
- Former Senior Analyst
- Date posted:
- 13 January 2021, 11:00 AM
- Sectors Covered:
- Consumer Discretionary (Retail)
- Universal Store Holdings (ASX:UNI) has seen a very strong resurgence of demand/sales in the wake of COVID-19 as restrictions eased (1H21 sales +24%).
- A higher GM and elevated opex leverage has seen EBIT lift c65% yoy, an incredibly strong period of growth despite VIC lockdowns and continued restrictions on youth events like festivals.
- UNI will cycle a weak 2H20 as peak COVID-19 materially impacted the group (even after including JobKeeper).
- We make 12-20% EPS upgrades following today’s update. Our new 2H21 EBIT estimate, while +125% yoy, still looks conservative given it implies a 1H/2H earnings skew of 73/27% and is well less than half 1H21 EBIT/month (excluding JobKeeper).
- We forecast a 3-year EPS CAGR (FY20A-FY23F) of 30% (skewed to FY21/FY23). Trading on c14x FY21F, annualised 4.7% yield and with earnings risk still firmly to the upside; Add rating maintained. Our target price lifts (login to view target price).
1H21 trading update – EBIT up 61-67% yoy
UNI has provided a 1H21 trading update. Revenue of A$118m (+24% yoy) was driven by 26.5% LFL sales growth.
Gross margins have improved yoy, while EBIT is expected to be A$30-31m (+61-67% yoy), reflecting both GM expansion and material opex leverage on this top-line outcome.
We note that the EBIT guidance includes JobKeeper, which we had already assumed in our forecasts (cA$3m net benefit). A big period of growth for the group, reflecting strong trading out of peak disruptions caused by COVID-19 and despite continued impacts from VIC over the half.
Strong top-line implied over 2Q21
As part of its prospectus, UNI provided detailed 1Q21 forecasts. Based on our analysis, 2Q21 revenue growth was +29.2% (vs 16.5% in 1Q); while EBIT growth was 49.7% (vs 100% in 1Q21) with JobKeeper ceasing at 1Q21-end.
This implies c65% of EBIT was made in the 2Q of 1H21, with Christmas a key trading period for the group.
Mapping out our forecasts
As a reminder, UNI’s historical seasonality has been ~54/46% at revenue. While seasonality at an earnings level was not disclosed in the prospects, we expect the skew is higher at this level.
The growth guidance implies UNI delivered cA$5m of EBIT in 2H20 (materially impacted by COVID-19) vs cA$18m in 1H20 (77/33% 1H/2H skew – although not
a relevant measure given COVID-19 impact). UNI therefore has a very weak base to cycle in 2H21.
We now forecast FY21 EBIT of A$42.5m, which implies c80% growth yoy and 125% growth in the 2H.
Our FY21 EBIT forecast implies a 1H/2H EBIT skew of 73%/27%. It also implies 1H21 EBIT/month (excluding JobKeeper) of A$4.7m falls to A$1.9m/month in 2H21 – so a potentially highly conservative assumption.
ADD maintained; target price lifts
We make 12-20% EPS upgrades across forecast years which sees our DCF/PE target price increase from A$6.05 (login to view target price).
UNI was net negatively impacted by COVID-19 in 2H20 (including JobKeeper benefit) and we therefore still consider the stock to be somewhat of a COVID-19 exit trade. UNI is still ‘young’ in terms of brand awareness and store footprint, leaving meaningful upside for incoming investors.
Based on our forecasts, UNI is trading on 14x FY21F; annualised yield of c4.7%. We think the group can sustain a 15x+ multiple based on a superior growth profile with multiple levers, strong cash generation/balance sheet.
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