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MySale Group plc

MySale Group Plc Momentum built throughout H2 continues into FY17, Zeus Capital increasing forecasts

MySale Group plc (LON:MYSL) the leading international online retailer, has today announced its audited preliminary results for the year to 30 June 2016.

Financial highlights

· Revenue growth of 7% to A$252.3 million (2015: A$235.9 million) for the full year with an accelerating trend in H2 (+10%)
· Strong gross profit growth of 21%, driven by 300bp margin improvement to 26.4%, also accelerating through the year
· Performance building well in the target growth territories:
o South-East Asia1 20% revenue growth; gross profit +117%
o United Kingdom 139% revenue growth; gross profit +133%
· Total overheads reduced, in line with plan, to 24% of revenue (2015: 27%)
· Operational leverage driving underlying EBITDA2up to A$5.5 million (2015: EBITDA loss -A$9.5 million)
· Strong balance sheet with cash balance of A$34.0 million
· The good trading momentum has continued – performance above expectations so far in the current year

Operational highlights

· Focus on improving gross margins and activating customers with higher lifetime-value
o Average order value increased 20% to A$90 (2015: A$75)
o Average revenue per active customer increased 9% to A$302 (2015: A$276)
· Further growth in mobile which now represents 58% of orders (2015: 56%) with over 6.7 million mobile apps downloaded
· Active customer numbers returned to growth in H2
· Returns rate remains at industry leading levels of only 5%
· Increase in sales from own-buy inventory to circa 15% (2015: 10%) in-line with strategic plan to grow gross margin
· Technology improvements including; enhanced search functionality across the platform to drive customer engagement; and more efficient logistics to reduce unit costs
· Acquisition of an Australian online retail business was integrated prior to the year end and anticipated to drive marketplace revenues in current and future years.
· After the year end, a partnership with Sports Direct has been launched in Australia.

Carl Jackson, MySale Group Plc Chief Executive Officer, commented “We have had a very good year in FY16 and saw improved performance throughout the business. This continued improvement was driven by the team’s clear focus on improving gross margins whilst still providing exceptional value to customers which in turn was supported by the group’s proven digital marketing activity and continued technology investment.

Our active customer base returned to growth in the second half of the year, core customer metrics remained robust, average order value increased and both revenue growth and margin improvement accelerated in the second half of the year, delivering full year performance ahead of expectations, despite some currency headwinds during the year. We have now grown our underlying EBITDA in each of the last three half year periods.

All three group territories have seen increases in revenue and gross profit. However it is in South-East Asia and in the United Kingdom, where we trade predominantly as Cocosa, that the Group has seen the most significant rates of growth. Our strategy for these, newer, territories has been firstly to grow the active member base and then to build profitability.

In FY16 we achieved significantly improved operational performance and solid progress against our strategic aims. We built on a solid first half with further improvements in the second half and our challenge now is to build further on that momentum and execute on the real and exciting opportunities the group has to significantly grow the business.

The new strategic partnership with Sports Direct is testimony to the capabilities we have to offer large retail partners and alliances such as this will provide further catalyst to our growth plans.

The group’s diversified international operations should be well insulated from any uncertainty associated with the United Kingdom’s prospective exit from the EU and in the immediate term the Group will experience some benefit from a weaker GBP Sterling exchange rate. Additionally, our core customer offer of compelling, discounted value in branded products should be highly relevant for consumers in tightening economic conditions.

We have seen an encouraging start to the current financial year with performance ahead of our expectations and, although the key trading period still lies ahead, the board is confident in the group’s prospects for the year.”

 

Zeus Capital issued the following note:

 

Full year revenue increased by 7% to A$252.3m, with good momentum gained in the second half with 10% revenue growth, while strategic initiatives helped deliver gross profit growth of 21%. The core ANZ region stabilised throughout the year, growing sales by 2.6% and gross profit by 12%, while the target growth markets of Asia and UK grew by 20% and 139% respectively. The strategy for these newer territories has been to firstly grow the active member base and then to build profitability, and this continues to work well. Gross margin improved 300bps to 26.4%. Adj. EBITDA of A$5.5m was ahead of our expectations of A$5.0m, driven by a reduction in overheads to 24% of revenue that has helped to deliver operational leverage. The good trading momentum has continued into the new financial year with the company reporting an encouraging start, ahead of expectations. As a result we are increasing our FY17 forecasts.

Changes to FY17 forecasts. Our FY17 sales estimate increases by 5.4% to A$278.9m (prior A$264.7m), implying full year revenue growth of 10.6%, while we increase our gross margin by 60bps to 28.3%, delivering gross profit of A$79.0m (prior A$73.2m). Our FY17 adj. EBITDA forecast increases by 10.3% to A$8.3m (prior A$7.5m), with a 20bps improvement in the margin to 3.0%.

Introducing FY18 estimates. For FY18 we are forecasting top line growth of 11.4% delivering sales of A$310.8m. We are modelling modest growth of c.7% in the core ANZ region, c.17% growth in Asia and c.47% growth in the UK. We are keeping gross margin broadly flat YoY at 28.2%, while operating leverage delivers a 50bps improvement in the EBITDA margin to 3.5% or A$11.0m.

Positive indication on KPIs boosted by a greater focus on engaged customers with higher lifetime value, as well as re-activating membership base, has helped deliver performance ahead of expectations. The average order value increased 20% to A$90 (prior A$75), while the average revenue per active customer increased 9% to A$302 (prior A$276). The percentage of sessions from mobile devices grew to 58% from 56%, and there has been over 6.7m downloads of the app. Importantly the active customer base returned to growth in H2, while the returns rate remains low at c.5%.

Strategic initiatives have helped to increase margins. Sales from own-buy inventory increased to c.15% from 10%, in line with strategic plan to grow gross margin. The business has also made improvements in technology including enhanced search functionality across the platform to drive customer engagement, and more efficient logistics to reduce unit costs.

Overall view. MySale Group Plc continues to deliver against the management action plan with improved operational performance, and it is particularly encouraging to see growth and improvement over the past three successive half year periods coupled with a significant improvement in the margin. There is also possible upside from new income streams including the Sports Direct partnership and retail marketplace in the core ANZ region. With a current market cap of £139m and a solid cash position of A$34m at the year end, the business should continue to re-rate as forecasts are achieved and the business delivers on its growth plan alongside the benefit of operational leverage.

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