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MySale Group plc

MySale Group Plc FY18 Finals: another year of progress

MySale Group Plc (LON:MYSL) FY18 was another year of progress for MySale, with increased sales and profitability, as the business continued to deliver on its longer term strategic objectives supported by the new tech platform. FY18 revenue increased by 8.9% to A$292.2m, while gross profit grew by 12.7% to A$85.7m, underpinned by a 100bps increase in gross margin to 29.3%, following on from a 190bps increase in FY17. Adj. EBITDA grew 35.5% to A$11.8m, which as stated at the pre-close, was slightly ahead of our previous A$11.5m forecast. Core KPIs continue to improve, with active customers +9% to 1.0m, order frequency +4% to 3.5x p.a., AOV +5% to A$91 and items per basket +4% to 3.4.

Management remain focused on maintaining profitable growth by securing more, higher lifetime-value customers via better product and pricing, while improving engagement and driving costs efficiencies via the tech platform. In addition, opportunities remain for the commercialisation of Ourpay, the proprietary ‘buy-now, pay-later’ payments, which has been used by 90k customers. The business has made a good start to the new financial year, with EBITDA for the full year expected to be in line with market forecasts.

Changes to sales mix in FY19 with online continuing to grow c.10% while non-core offline has planned reduction means top line expected to be flat, profitability forecasts unchanged at +25% as the benefits of the new platform significantly reduce operating costs. For FY19, we are now forecasting flat top line growth of 0.8% to c.A$295m (prior A$323.5m), with a planned reduction in offline sales (c.12% of group revenue in FY18) offset by an underlying c.10% growth in core online sales, which drives a c.100bps reduction in the gross margin forecast to 28.5%. However, cost efficiency benefits (tech platform now really showing ability) of online sales will deliver a 50bps improvement in the EBITDA margin to 5.0%, resulting in an unchanged EBITDA forecast of A$14.7m, +25.2% growth YoY, supporting long term growth.

 Introducing FY20 estimates. For FY20, we are forecasting top line growth of 7.0%, delivering sales of c.A$315m. We expect a 60bps reduction in the gross margin as offline sales continue to reduce, while efficiency gains from the tech platform across the business will deliver a 40bps improvement in the EBITDA margin to 5.4% or A$17.0m, +15.6% growth YoY.

Closing cash position of A$6.8m and net debt of A$6.3m was lower than expected. This predominantly reflects WC investment, with trade receivables increasing from A$17.0m in FY17 to A$29.9m. The investment in WC, mainly for offline channels, has helped the business secure and build brand partnerships, helping prove the marketplace model with bigger retailers by de-risking them from the process. With these objectives achieved, the WC outflows will reverse in FY19 and we expect net cash of c.A$7.0m by the year end.

Overall view and valuation opportunity. Management continues to deliver improved operational performance and profitability. MySale now has over 1.2m SKUs available online and over 2,500 brand partners that should support future growth in the core business alongside efficiencies. MySale is an established e-commerce business generating substantial revenue and is currently valued on an FY19 EV/EBITDA of just 8.9x and EV/Sales multiple of just 0.4x