BUY

(PREVIOUS: ACCUMULATE)

TARGET PRICE 39.2 PLN

19 MAY 2023, 13:00 CEST

We raise our target price for the company's shares to PLN 39.2/share. As a result of the downward macroeconomic situation in 2022, the cost of doing business increased significantly, resulting in a considerable decline in earnings in the period. However, it should be noted that despite the significant increase in the USD exchange rate, the company maintained its gross profit margin on sales at a high level. This indicator continues to record satisfactory values, which is why we are raising our forecast for its level in the long term from 60,8% to 61,2%. This is the main reason for the significant increase in the target price. We expect that after the stabilization of SG&A costs and with further growth in revenues, the company has growth potential in the medium and long term.

At the same time, sales revenue forecasts have been raised. In 2022, the company made a number of investments in the online channel - primarily the opening of new, more transparent websites and the launch of a mobile application, resulting in high online sales growth. Entering the Zalando platform in Germany turned out to be a very good decision, so now the company is working on launching sales through this channel in Austria and Switzerland. In addition, there are plans to open stationary stores in the Serbian market, with the first stores expected to open in 2023. Marketing activities, especially the introduction of TV commercials, which contributed to an increase in the number of customers in 2H'22, also have a positive impact on sales.

The creation of the Vosedo multibrand platform, in our opinion, will not have a significant impact on the group's operations in the short term. Once the agreement with Oponeo.pl is terminated, it will be counted as one of the company's online stores, while visible support for online sales in our opinion will still have to wait.

In 2022, a serious problem for the company was the increase in SG&A costs. We expect the current year to bring a deceleration of these dynamics. Management costs will continue to be burdened by expenditures on the development of RFiD technology - the first autonomous stationary salon is expected to be built by the end of the year. According to our estimates, in 2023, outlays for this project should oscillate around PLN 4.5 million, while we estimate the subsidy for this project at over PLN 3.5 million.

In line with management's announcements, we expect inventory levels to decline in 1H’23. Increased inventory due to problems in supply chains and the rise of Vosedo does not seem to be justified in the current situation.

For the first time, we include in the valuation a comparative valuation to Polish and foreign apparel companies, but due to differences in the in the structure of the assortment and scale of operations, we have assigned it a weight of 20%.

DCF valuation [PLN] 36,8

Peer valuation [PLN] 48,9

Target price [PLN] 39,2

Price upside/downside 18,9%

Cost of capital 12,6%

Price [PLN] 33,0

Market cap [PLNm] 73,7

No. of shares [mn] 2,2

Max. price 6M [PLN] 37,1

Min. price 6m [PLN] 22,5

Rate of return 3M 7,8%

Rate of return 6M 27,4%

Rate of return 9M 7,5%

Shareholders (% of votes):

Patronado Ltd. 40,5%

Esotiq & Henderson S. A. (akcje własne) 11,4%

Adam Skrzypek 4,6%

Marek Warzecha 2,6%

Pozostali 41,0%

Valuation summary

DCF valuation

WACC calculation

Sensivity analysis

Peer valuation

Main risks:

1. Unfavorable changes in the USDPLN exchange rate;
2. High inflation and decline in disposable wealth;
3. Supply chain problems;
4. Prolonging war in Ukraine and escalating tensions between Russia and the West;
5. Risks of fixed network expansion;
6. E-commerce development;
7. Seasonality of results;
8. Market competition;
9. Risk of misguided collection;
10. Legislative changes

Anna Tobiasz, DI

anna.tobiasz@bdm.pl

tel. (+48) 666 073 972

Dom Maklerski BDM S.A. ul. 3-go Maja 23, 40-096 Katowice

GPW’s Analytical Coverage Support Programme 3.0