MySale Group plc (LON:MYSL) has announced results for FY20A, a year of significant transformation for the Group with the business restructured, recapitalised and repositioned for sustainable and profitable growth. MySale is now a well invested, inventory light e-commerce platform, backed by a solid balance sheet with no debt and cash of A$15.9m at 31 October. We see potential for significant operational gearing to be realised as the business begins to re-scale its international partnerships and build out a new stock model focused on shallow buys using a test and repeat strategy, evidenced by profitable and cash generative trading delivered in Q4 FY20 and the first quarter of FY21E.
- FY20A results: Revenue of A$131.0m fell 37.2% YOY (FY19A: A$208.6m) as the Group focused on returning to profitability. Gross margin expanded +840ps to 33.5% reflecting improved product mix and lower levels of margin dilution from aged inventory clearance. Significant operating cost savings were delivered, down 47.4% YOY with EBITDA loss of A$2.7m, ahead of management plan.
- Momentum building: The Group exited FY20A with strong trading momentum, operating on a profitable, cash generative and debt free basis with further improvement to gross, delivered and contribution margins delivered in Q1 FY21. The Group’s proposition continues to attract increasing levels of interest from international brand partners, and we believe the recent share subscription from the ex-Catch.com.au founders and CEO is a clear endorsement of the perceived potential for the Group’s restructured and rightsized platform offer.
- Outlook: We see several tailwinds to support MySale’s performance over FY21E, including a glut of excess inventory resulting from the severe disruption to retail caused by COVID-19, a likely shift to value-driven retail resulting from ongoing economic uncertainty and the acceleration of e-commerce growth in ANZ which is a relatively immature market for online retail (c.17% penetration versus c.30% for UK). MySale now operates a much more resilient, well invested and agile platform model with A$15.9m in net cash at 31 October, following the most recent round of investment.
- Forecasts: We have taken a conservative approach to our forecasts for the year ahead given ongoing heightened uncertainty and a lack of visibility over near term trading, but note the solid momentum seen YTD with the Group trading profitably and cash generatively through Q4 FY20A and in the first four months of FY21E, with margins continuing to expand.
- Valuation: MySale Group’s restructured platform offer has the potential to scale quickly and profitably. Our medium-term intrinsic valuation analysis illustrates the potential for MySale to be a A$15m-A$20m EBITDA business on a 3-5-year view. Applying the average peer group FY3 EV/EBITDA multiple of 18.5x suggests an enterprise value of £153m – £204m, 62%-117% upside to current levels.
