A transformational year

Studio Retail Group 5 July 2021 Flash note

Studio Retail Group

A transformational year

FY21 results and capital markets day

Retail

5 July 2021

Price

290p

Market cap

£251m

Net debt (£m) at 31 March 2021

27.6

Shares in issue

86.4m

Free float

69.6%

Code

STU

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

Business description

Studio Retail Group is a leading online value retailer with an integrated financial services offer. It offers a broad product range including clothing, home and leisure. The growth strategy is based around three key levers: value, choice and payment options, and management’s medium-term target is to achieve revenue of £1bn.

Analysts

Russell Pointon

+44 (0)20 3077 5700

Sara Welford

+44 (0)20 3077 5700

Studio Retail is a research client of Edison Investment Research Limited

Studio Retail Group’s (SRG) exceptional results in FY21 are due to strong customer growth and spend per customer and reflect its product appeal and convenience, helped by positive effects from the COVID-19 pandemic. After the sale of its Education business, SRG represents a pure play on the growth of online value retail. At the capital markets day, management reiterated its ambition to grow revenue to £1bn within four to six years, a minimum CAGR of 9.5%. The key drivers are expected to be growth of the customer base, enhancing spend per customer and providing more flexible payment options. These play to SRG’s strengths, as evidenced in recent years. With a more focused structure, management anticipates the above should lead to improved cash generation and potentially a return to dividend payments in the medium term. Our forecasts are under review.

Year end

Revenue (£m)

PBT*

(£m)

EPS*
(p)

DPS
(p)

PE
(x)

Yield
(%)

03/20**

434.9

27.3

12.1

0.0

24.0

N/A

03/21**

578.6

48.8

44.9

0.0

6.5

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Restated for continuing operations.

Total year-on-year revenue growth of 33% converted to adjusted PBT growth of 79% to £48.8m. Product revenue growth of 43% was helped by growth in active customers (+35%), to a record 2.5m, and in the average spend per customer (+5%). New credit accounts (+14%) and management actions to help customers negatively affected by COVID-19 led to 8% revenue growth in financial services.

Against a tough comparative, it is encouraging that current trading is positive overall, with no post COVID-19 fall: Q122 product revenue is flat year-on-year versus the Q121 +51% comparative and the gross margin is 340bp higher; financial services revenue is 15% higher. For FY22, management guides to adjusted PBT of £42–45m, due to the reopening of the high street after COVID-19 lockdowns, well-documented COGS inflation and higher marketing costs.

As in FY21, SRG has enjoyed strong customer growth as brand awareness increased. Management is confident of further growth as it continues to target its core underpenetrated demographic, with more brand spend and focused targeted marketing as customer data are used more effectively.

Increasing spend per customer is expected from extending the product range with more stock keeping units in new products categories and more brands that will close the offer gap versus its peers, as well as a clearer pricing architecture.

SRG has made progress in ensuring customers spend more responsibly, with respect to their incomes and debt. As it continues to improve its screening and customer interaction, more flexible interest rates that vary with a customer’s relative risk, and more flexible payment terms are expected to make the credit offer more appealing to more customers.

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