Analyst Comment – Esotiq&Henderson Q3’22 Results

Q3'22 results above our expectations - high revenues and lower margin decline (positive)

The report was prepared by Dom Maklerski BDM at the request of the WSE as part of the Exchange's Analytical Coverage Support Programme

Last recommendation BDM: BUY with target price 29,6 PLN/share (2022/10/07) LINK

Q3'22 results above our expectations - high revenues and lower margin decline (positive)

Q3'22 was a record quarter in the company's history in terms of revenue. The high USD exchange rate and sales to reduce inventory levels resulted in a decline in gross margin on sales, but the margin turned out to be higher than our forecasts (58.8% vs. 57.3% expected) Cumulatively after 9 months 2022, the margin was 62.4%, which means that the company is, for the time being, delivering its target of maintaining the ratio above 60%. Due to store closures in Ukraine there was a slight decrease in store space (-1% y/y). The company also closed a store in Romania, where it currently maintains an online presence, wholesale and multibrands. Esotiq intends to expand its ecommerce network in Moldova and Germany. There are also underway efforts to start selling on Zalando in Austria and Switzerland. A mobile application was launched in late October'22. The company notes that in this sales channel, the sales per customer is 15% higher than the standard, and the number of items per receipt is also higher. In the first month of the app's operation, Esotiq recorded about 20,000 downloads, and the conversion rate was 17%. In Q3'22, the company paid a dividend of PLN 3.9 million, while keeping positive cash flow from financing activities, mainly due to proceeds from loans and borrowings. Net debt after equity was PLN 55.1 million, or 1.7x EBITDA. In Q3'22, the Vosedo.com platform, a project in cooperation with Oponeo.pl, has launched and generated first sales. Due to the continued lack of an investment agreement, it was not included in the company's results

BDM's comments: Q3'22 results, despite lower y/y figures, surprised positively. First of all, revenues and gross sales margin turned out to be higher than the company's initial estimates. As a result, gross profit on sales turned out to be PLN 2.6 million higher than our forecasts. Further, there was a higher-than-expected increase in general and administrative expenses, which may be due to increased expenditures on a project related to the development of RFID technology. Ultimately, the company achieved PLN 9.9 million in EBITDA and PLN 4.6 million in net profit. In the current reality of rising costs and a strong USD exchange rate, we view the results positively. Note that Q3'21 represents a high base due to lower store operating costs and then ongoing trend of a return to in-store shopping, which was conducive to selling products at first prices and not exerting selling pressure. We also note the high level of inventories, which, given the tightened pandemic restrictions in China, the geopolitical situation and the steady increase in sales, seems justified.

Analyst: Anna Tobiasz anna.tobiasz@bdm.pl tel.: (+48) 666 073 972

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