Analyst John Wilson at Zeus Capital said:
We anticipate that MySale has achieved break-even EBITDA for the second half of the year on FY sales growth of 5%, which is in line with management’s expectations, as outlined at the end of February. We are encouraged that the management action plan to resolve issues encountered in H1 continues to progress, in particular with the announcement of today’s changes at board level. Strong momentum and profitability returned in Q4 as the business focused on growth and successfully executed a reduction in fixed costs. We expect profitability to return in FY16.
- The anticipated break-even EBITDA figure for H215 and profitable Q4 comes as a result of improved gross margins and reduced costs (achieved by the removal of one off promotions and a reduction in the headcount across all regions). As a result of these corrective actions, momentum was seen to build throughout the half with EBITDA profitability reported in Q4. Although EBITDA break-even for H2 was in line with management’s expectations, full year adj. EBITDA loss of c.(A$11.2m) was slightly below our previous FY expectations of (A$7.8m). At this stage, we have also decided to take a more cautious and prudent view to the upcoming year, and as a result we are reducing our FY16 sales growth expectations to 5.1%, from 9.8%, which has the effect of reducing our sales figure from A$265m to A$247m. We now model a more conservative return to profitability with EBITDA forecasts for FY16 reducing from A$9.9m to A$4.7m. We note however that there is potential for positive surprises as the year progresses.
- The appointment of Iain McDonald as non-executive Chairman will bring fresh ideas and his considerable experience of the UK online retail market will be complementary to the existing management team. This will help the business capitalise on the huge UK market. Iain has been a successful investor in technology and e-commerce companies such as ASOS as a partner with the William Currie Group over the past seven years, and sits as a NED on the board of various companies including The Hut Group. As well as being incentivised to lead a recovery in the share price, Iain will bring his extensive experience in the e-commerce sector and a fresh perspective to the business at board level that will help to drive growth and profitability to MySale’s well-established platform.
- Less promotional activity and product discounting, as well as higher mix of own buy product versus consignment has helped a recovery in the gross margin during H215. The business has refocused on achieving profitable margin through well-known branded product campaigns every day, which is getting back to what they do best. Also, where valuable opportunities present themselves, MySale will be increasing the mix of own-buy “off price” inventory primarily sourced from Europe and the UK. As well as supporting the gross margin, investment into inventory will also help improve brand selection to customers.
- Management team now fully focused on execution. The group is focussing its marketing spend on proven digital channels, while continuing to invest in technology to drive efficiencies in the warehouse and distribution costs, data and mobile technology. The business can lever its strong balance sheet and relationships with key industry brands through Sir Philip Green to secure supply of product, which should continue to drive long term growth in the geographies that MySale is already established.
- For FY17 we are maintaining a conservative outlook and model just 5% sales growth for the group giving sales of c.A$260m. We expect a recovery in the gross margin to 27.9% as more product continues to be sourced from Europe and the investment in inventory continues, giving EBITDA of A$7.5m. We also note the potential to leverage the technology, buying and distribution platform and the cash rich balance sheet gives a lot of flexibility and opportunity in this regard. MySale is a business that generates substantial revenues that is currently valued on an EV/Sales multiple of just 0.3x; if the average FY2 EV/Sales multiples for the US listed flash sales businesses Zulily and VIPShop were applied to MySale the price would be 93p, while the wider e-commerce peer group trades on an average FY2 EV/Sales multiple of 2.0x, which if applied to MySale would equate to 164p.
