Accent Group: Model update

About the author:

Author name:

By Alexander Mees

Job title:

Head of Research

Date posted:

10 January 2022, 10:30 AM

• We have remodelled Accent Group (ASX:AX1) following a change in analyst coverage.
• Our new EBIT forecast for FY22 is $97.4m, 4.6% lower than our previously published estimate of $102.1m. According to Visible Alpha, market consensus is $103.4m.
• Our 12-month target price is (login to view).

Forecast and valuation update

At its AGM in November 2021, AX1 indicated that the temporary closure of around 400 of its stores due to lockdowns in several key markets reduced sales by $86m and EBIT by $40m in the first 18 weeks of 1H22. Our new FY22 group sales forecast is $1,032.7m, 5.2% lower than our previous forecast of $1,089.1m.

We forecast a gross profit margin of 54.1% in FY22, down 200 bp yoy. AX1 disclosed at its AGM that promotional activity during lockdown impacted gross margins by 700 bp, but that margins had recovered since the re-opening of stores. Our EBIT margin forecast for FY22 is 9.4% (the same as our previous model).

AX1 opened 63 stores in the first 20 weeks of FY22, just two stores short of its original guidance for the whole year. It upgraded this guidance to 120 new stores at the AGM. We include 120 new stores in our model, offset by 5 closures.

We expect AX1 to release its 1H22 results after market on 22 February. We forecast a 53.3% drop in first half EBIT to $38.2m, with the decline mainly a function of the impact of lockdowns and the non-recurrence of the $9m JobKeeper benefit received in the PCP. Our estimate is 19% lower than Visible Alpha consensus ($47.4m with a broad range of $36.5-58.5m).

Our new valuation model is based on a blend of DCF and EV/EBIT methodologies. Our updated 12-month price target is (login to view), 6.6% lower than our previously target.

Investment view

AX1 has a multi-faceted growth strategy, but this is countered by a 23x FY22F P/E ratio, higher gearing than many of its peers, and the reliance on distribution agreements with large third-party suppliers.

We rate the stock a HOLD.

Risks

Loss of distribution agreements, or a deterioration of terms on renewal.

Failure to roll out stores as expected.

A downturn in consumer discretionary expenditure.

Find out more

Download full research note

If you would like access or more information, please contact your adviser or nearest Morgans office.

Need access to our research?

You are also welcome to start a two-week trial of our online platform, which provides access to detailed market analysis and insights, provided by our award-winning research team. 

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.