Studio Retail Group — Strong trading and more focused

Studio Retail Group — Strong trading and more focused

Studio Retail Group’s (SRG’s) Q421 trading update highlights continued strong trading for the core online retail business through the end of FY21, buoyed in part by the forced closure of competitors on the high street. The (completed) disposal of the more challenged Education business completes the multi-year refocusing of the portfolio and leads to SRG now being a pure-play online retailer with an improved growth outlook than previously. The pro forma net cash position leaves the management team well placed to consider its options to enhance the group’s growth profile and shareholder value, which the new CEO will present at the FY21 results at the end of June and at a capital markets day in July. Our forecasts are under review.

Russell Pointon

Written by

Russell Pointon

Director, Consumer

Studio Retail Group

Strong trading and more focused

Trading update and disposal

Retail

20 April 2021

Price

307p

Market cap

£267m

Net debt (£m) at 31 March 2021

27.6

Shares in issue

86.9m

Free float

64.4%

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 Group is a research client of Edison Investment Research Limited

Studio Retail Group’s (SRG’s) Q421 trading update highlights continued strong trading for the core online retail business through the end of FY21, buoyed in part by the forced closure of competitors on the high street. The (completed) disposal of the more challenged Education business completes the multi-year refocusing of the portfolio and leads to SRG now being a pure-play online retailer with an improved growth outlook than previously. The pro forma net cash position leaves the management team well placed to consider its options to enhance the group’s growth profile and shareholder value, which the new CEO will present at the FY21 results at the end of June and at a capital markets day in July. Our forecasts are under review.

Year end

Revenue (£m)

PBT*

(£m)

EPS*
(p)

DPS
(p)

PE
(x)

Yield
(%)

03/19**

421.7

25.6

23.7

0.0

13.0

N/A

03/20**

434.9

27.4

8.2

0.0

37.4

N/A

Source: SRG. Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Continuing operations (ie excluding Education).

The trading statement highlights continued impressive trading through the end of FY21 for the core, Studio. Strong growth in customer numbers (active customers increased by 36% y-o-y to 2.5m, of which active credit customers grew by 15% to 1.5m) drove Product sales growth of 43% and a gross margin increase of 290bp for FY21. Following a ‘record’ performance during the more seasonally significant Q321 trading period (Product sales +32% y-o-y, gross margin +440bp) despite a strong comparative, growth accelerated in Q421 (Product sales +88% y-o-y, gross margin 650bp). For FY21, management indicates that adjusted PBT will be £48–50m, y-o-y growth of 75–83% on FY20’s £27.3m (previously disclosed £27.4m).

The y-o-y improvement in both collections and the arrears profile of the credit book is testament to the company’s multi-year investment in customer screening and management of its credit offer given prior fears about the potential negative effects of a more challenging macroeconomic environment.

The (received) gross proceeds for Findel Education of £30m are lower than the indicated £50m gross proceeds for the previously announced planned disposal to Yorkshire Purchasing Organisation, which was halted due to potential competition issues. However, the sale to Leeds-based private equity company, Endless LLP, had no market competition issues and was completed quickly with proceeds received on 16 April 2021. Studio’s defined benefit pension will receive £9m of the net proceeds. The scheme is now in a strong surplus against its funding targets.

On a pro forma basis, including the above disposal proceeds and further securitisation post the year-end, the group is in a core net cash position. This follows the strong free cash flow generation during FY21 that reduced the core net debt position to £27.6m at the year-end (FY20 £51.8m).

General disclaimer and copyright

This report has been commissioned by Studio Retail Group and prepared and issued by Edison, in consideration of a fee payable by Studio Retail Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: Industrials

Kendrion — Energised by electrification

Kendrion is a global player in high-quality electromagnetic systems that optimise safety, performance and comfort in automotive and industrial applications. The coronavirus pandemic creates a short-term uncertain market environment but the underlying demand for Kendrion’s products is strong and it will benefit from multiple long-term disruptive trends, such as autonomous driving, electrification, emission reduction and industrial automation. Its valuation shows a discount to peers, which should gradually vanish when company targets are met.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free