This report was prepared for the Warsaw Stock Exchange SA within the framework of the Analytical Coverage Support Program 3.0.
Monnari Trade's results for the third quarter are good. The Company generated revenues of PLN 66.162 million, which means an increase of 17.9% compared to the third quarter of 2021 and a decrease by 10.0% q/q. In the clothing industry, characterized by seasonality, a decrease in sales in the third quarter is a normal phenomenon.
Gross profit on sales amounted to PLN 35.745 million and was higher by 12.2% y/y. Gross margin on sales amounted to 54.0% (an increase of 2.3 p.p. y/y and a decrease of 7 p.p. q/q), which, taking into account the seasonality of the industry, is a good result (the last time in the third quarter Monnari Trade generated such a high margin in 2018 - 56.1%) We perceive the Company's cost discipline moderately positive. Selling costs increased by 23.9% y/y, and overheads by 30.1% y/y, which resulted in the Company losing profitability at the level of profit on sales. Thanks to the redemption of the preferential loan from PFR (PLN 11.4 million), Monnari Trade generated PLN 10.1 million in operating profit (the year before, the EBIT loss was minus PLN 1.128 million) and PLN 10.914 million in net profit (the year before, plus PLN 692 thousand).
The Company's fundamentals remain solid. Thanks to the sale of a part of Geyer’s Gardens, liquidity remains high and liabilities are consistently decreasing. Despite the uncertainty in the macroeconomic environment, we assess the prospects for further growth positively, which is influenced by: a strong labor market, the strengthening of the zloty against the dollar, inflation rate slowdown in Poland and the suspension of the monetary policy tightening cycle.
The Company's results are better than our expectations, hence we finally increase our valuation to PLN 7.2 per share (previously PLN 6.7), which is also due to a decrease in discount rates (WIBOR, treasury bond yields) and an increase in valuation multiples of peer companies
Expected impact: At the revenue level, Monnari Trade's results are close to our estimates (PLN 66.162 mln vs. PLN 63.277 mln expected). The gross profit on sales turned out to be higher by 6.7% than our forecast (PLN 35.745 million vs. the expected PLN 33.502 million). On the other hand, at the level of operating profit, the result turned out to be slightly worse than we expected. EBIT amounted to PLN 10.111 million, with our estimates at PLN 10.583 million. The Company's net profit surprised us positively and amounted to PLN 10.914 million against the expected PLN 6.92 million. As announced by the Management Board, the Company's cash resources decreased in Q3 (from PLN 97.7 million at the end of Q2 to PLN 51.1 million). These funds were utilized to i.a. increase in inventories and decrease in liabilities, which fell from PLN 57.7 million in Q2 to PLN 48.9 million in Q3. In the perspective of the next year, the Company's results will be influenced by the economic situation in Poland, the exchange rate of the dollar against the zloty (the settlement currency for the purchase of imported goods) and cost discipline. Slightly better than expected results prompt us to revise our forecasts upwards at the level of net profit.
Therefore, after updating the data in the model and multiples in the comparative valuation, we increase our valuation to PLN 7.2 per share at the end of 2022 (previously PLN 6.7).
We believe the Company remains heavily undervalued. We see potential for growth not only in the company's core business (sale of clothing and clothing accessories), but also in the possibilities of business development of the remaining, unsold part of Geyer Gardens.
Analyst Åukasz Bryl Tel.: 785 500 874
GPW’s Analytical Coverage Support Programme 3.0
