Corporate Finance

Wilsons Equity Research

Analyst(s) who own shares in the Company: n/a Issued by Wilsons Advisory and Stockbroking Limited (Wilsons) ABN 68 010 529 665 - Australian Financial Services Licence No 238375, a participant of ASX Group and should be read in conjunction with the disclosures and disclaimer in this report. Important disclosures regarding companies that are subject of this report and an explanation of recommendations can be found at the end of this document.

Theme

Merger / Acquisition

Company

Noni B (NBL)

Date

23 November 2019

Overweight: An easy buy

Noni B Group has acquired 50.1% of EziBuy Limited with the option to

acquire the remaining 49.9% by 31 December 2020 for $11.0m, which

implies an EBITDA multiple of 2.1x. The acquisition provides immediate

online scale, online breadth and online cross-selling opportunities for the

group and as a result management expects online to grow to 20% of sales

by FY20e (annualised). We believe the transaction will also allow the

group to leverage its already attractive gross margins given its extensive

store network resulting in potentially higher online margins than peers.

We believe there is minimal risk to shareholders with this transaction.

OVERWEIGHT.

Key points

Valuation: We move to a DCF base valuation methodology from a blended

methodology previously, given we are comfortable NBL has largely intergraded

the Pretty Girl and SFH acquisitions. As a result, our valuation +9.5% to

$4.20/share which reflects a FY20e PE of 6.5x, -15.2% vs peers.

Earnings: Minor changes to forecasts. EBITDA forecasts +2.3% and +2.3% to

$77.9m and $78.5m in FY20e and FY21e respectively, ahead of guidance for

$75.0m. Our forecasts are 2.6% ahead of consensus in FY20e.

Trading update: Trading remains challenging. Group LFL sales to the end of

October -4% yoy, albeit Noni B brands were traded for cash in 1H19a to

facilitate the SFH acquisition. EBITDA for the first four months of FY20e has

improved $9m yoy ahead of our previous expectations for +$9m in 1H20e

($38.1m).

Transaction: NBL has acquired 50.1% of EziBuy for $1.0 from Alceon, with the

option to acquire the remaining 49.9% on or before 31 December for $11.0m.

While EziBuy is currently break-even (FY19a EBITDA $0.38m) NBL believe it

will be able to achieve cost efficiencies of $8.5m resulting in a FY20e EBITDA

of $5.2m, implying an attractive multiple of 2.11x EBITDA. NBL can sell EziBuy

back to Alceon for $1.00 should it choose to note take up the option. Given the

transaction with with a related party, it is subject to a shareholder vote which is

schedule for 23 December 2019.

Risks and catalysts

Risks: 1) poor response to revised pricing models; 2) rapid decline in broader

retail sales and consumer confidence; and 3) successful succession planning.

Catalysts: 1) announcement of further accretive acquisitions; 2) announcement

of further cost efficiencies; and 3) trading update MYR, CCX or PMV.

Recommendation OVERWEIGHT

12-mth target price (AUD) $4.20

Share price @ 22-Nov-19 (AUD) $2.57

Forecast 12-mth capital return 63.6%

Forecast 12-mth dividend yield 8.9%

12-mth total shareholder return 72.5%

Market cap $249m

Enterprise value $249m

Shares on issue 97m

Sold short 0.0%

ASX 300 weight n/a

Median turnover/day $0.1m John Hynd

[email protected]

Tel. +61 2 8247 6661

12-mth price performance ($)

1-mth 6-mth 12-mth

Abs return (%) -3.0 -2.2 -8.7

Rel return (%) -4.1 -4.5 -27.4

Earnings forecasts

Year-end June (AUD) FY18A FY19A FY20F FY21F FY22F

NPAT rep ($m) 17.6 8.2 37.2 37.8 41.3

NPAT norm ($m) 17.8 9.0 38.1 38.7 42.2

Consensus NPAT ($m) 37.5 40.8 42.6

EPS norm (cps) 21.1 9.4 39.5 40.2 43.8

EPS growth (%) 30.0 -55.6 321.9 1.7 8.9

P/E norm (x) 12.2 27.4 6.5 6.4 5.9

EV/EBITDA (x) 6.7 6.9 3.2 3.2 3.0

FCF yield (%) 8.7 9.4 11.9 19.4 20.4

DPS (cps) 13.0 14.5 23.0 23.5 26.0

Dividend yield (%) 5.1 5.6 8.9 9.1 10.1

Franking (%) 100 100 100 100 100

Source: Company data, Wilsons estimates, S&P Capital IQ

Key changes

28-Aug After Var %

NPAT: FY20F 36.9 38.1 3.2%

norm FY21F 37.5 38.7 3.4%

($m) FY22F 38.7 42.2 9.1%

EPS: FY20F 38.3 39.5 3.2%

norm FY21F 38.9 40.2 3.4%

(cps) FY22F 40.2 43.8 9.1%

DPS: FY20F 23.0 23.0 0.0%

(cps) FY21F 23.5 23.5 0.0%

FY22F 24.0 26.0 8.3%

Price target: 3.84 4.20 9.5%

Rating: O/W O/W

2. 20

2. 55

2. 90

3. 25

3. 60

3. 95

Nov-18 Mar-19 Jul-19 Nov-19

NBL XSI Rebased

23 November 2019

Specialty Retail

Noni B Limited

Wilsons Equity Research

Page 2

Growth rates

Returns

Margin trends

Solvency

Free cash flow yield

Interims ($m)

1H19A 2H19A 1H20E 2H20E

Sales revenue 462.1 402.4 444.7 457.9

EBITDA 23.5 12.6 36.2 41.7

EBIT 12.3 1.4 25.1 29.3

Net profit 9.2 -0.2 17.6 20.4

Norm EPS 9.6 -0.2 18.3 21.2

EBIT/sales (%) 2.7 0.3 5.6 6.4

Dividend (c) 9.0 5.5 11.0 12.0

Franking (%) 100.0 100.0 100.0 100.0

Payout ratio (%) 94.1 <0 60.0 56.5

Adj payout (%) 8.1 <0 15.3 <0

Key assumptions

FY15A FY16A FY17A FY18A FY19A FY20F FY21F FY22F

Revenue Growth (%) -4.0 0.0 187.1 17.6 136.8 4.4 7.9 18.0

EBITDA Growth (%) 424.7 -286.3 295.9 62.4 22.2 71.4 0.8 6.3

EBIT Growth (%) 52.4 -164.0 287.8 94.5 -13.0 134.8 1.1 9.0

NPAT Growth (%) 12.7 -153.6 306.8 79.3 -53.8 357.4 1.8 9.1

EPS Growth (%) 12.7 -144.0 98.8 62.7 -57.7 357.4 1.8 9.1

EBIT / Sales (%) -5.1 3.3 4.4 7.3 2.7 6.0 5.6 5.2

Tax Rate (%) -17.1 -33.6 -21.3 -30.8 -31.5 -30.0 -30.0 -30.0

ROA (%) -15.5 6.5 2.4 7.4 2.0 12.2 11.3 10.8

ROE (%) -53.7 20.2 6.9 16.0 7.7 33.6 29.3 27.6

Financial ratios

FY15A FY16A FY17A FY18A FY19A FY20F FY21F FY22F

PE (x) -18.8 37.4 15.8 12.2 27.4 6.5 6.4 5.9

EV/EBITDA (x) -80.2 43.0 10.9 6.7 6.9 3.2 3.2 3.0

Dividend yield (%) 0.0 0.0 0.0 5.1 5.6 8.9 9.1 10.1

FCF yield (%) 2.1 3.1 13.4 8.7 9.4 11.9 19.4 20.4

Payout ratio (%) 0.0 0.0 0.0 61.6 154.7 58.2 58.4 59.3

Adj payout (%) 0.0 0.0 0.0 44.5 52.7 53.5 48.7 48.4

Profit and loss ($m)

FY15A FY16A FY17A FY18A FY19A FY20F FY21F FY22F

Sales revenue 107.9 107.5 311.5 364.2 864.5 902.7 974.1 1,151.9

EBITDA -3.1 5.8 22.9 37.2 36.0 77.9 78.5 83.4

Depn & amort 2.4 2.3 9.2 10.6 22.3 23.6 23.6 23.6

EBIT -5.5 3.5 13.7 26.6 13.7 54.4 55.0 59.9

Net interest expense -0.1 -0.1 1.2 1.2 1.9 1.2 0.9 0.9

Tax -0.9 1.2 2.7 7.8 3.7 15.9 16.2 17.7

Minorities/pref divs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Equity accounted NPAT 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net profit (pre-sig items) -4.5 2.4 9.8 17.6 8.1 37.2 37.8 41.3

Abns/exts/signif 0.0 0.0 -5.5 0.0 0.1 0.0 0.0 0.0

Reported net profit -4.5 2.4 4.3 17.6 8.2 37.2 37.8 41.3

Cash flow ($m)

FY15A FY16A FY17A FY18A FY19A FY20F FY21F FY22F

EBITDA -3.1 5.8 22.9 37.2 36.0 77.9 78.5 83.4

Interest & tax 0.7 0.1 -2.1 -9.3 -17.4 -17.2 -17.1 -18.6

Working cap/other 7.5 1.8 12.6 -6.2 4.8 -9.9 8.5 7.8

Operating cash flow 5.1 7.7 33.4 21.7 23.5 50.8 69.9 72.6

Maintenance capex 0.0 0.0 0.0 0.0 0.0 -21.1 -21.5 -21.9

Free cash flow 5.1 7.7 33.4 21.7 23.5 29.7 48.4 50.7

Dividends paid 0.0 0.0 0.0 -9.7 -12.4 -15.9 -23.6 -24.6

Growth capex -0.3 -3.6 -11.1 -14.2 -8.2 -1.1 -11.5 -0.5

Invest/disposals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Oth investing/finance flows -1.5 0.6 -37.1 31.9 -57.0 0.0 0.0 0.0

Cash flow pre-financing 3.3 4.6 -14.8 29.7 -54.1 12.8 13.3 25.6

Funded by equity 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Funded by debt -0.1 -0.2 30.0 0.0 32.0 -18.0 0.0 0.0

Funded by cash -3.2 -4.4 -15.2 -29.7 22.1 5.2 -13.3 -25.6

Balance sheet summary ($m)

FY15A FY16A FY17A FY18A FY19A FY20F FY21F FY22F

Cash 8.5 12.9 28.2 58.7 36.6 31.4 44.7 70.3

Current receivables 0.4 1.5 3.7 5.2 5.6 5.0 5.3 6.1

Current inventories 9.9 11.4 29.2 45.5 167.0 114.2 122.4 143.1

Net PPE 5.1 6.4 28.3 32.2 41.1 40.0 50.4 55.2

Intangibles/capitalised 4.9 4.2 90.6 92.6 156.4 156.4 156.4 156.4

Total assets 29.0 37.0 180.7 237.0 411.9 352.2 384.3 436.3

Current payables 14.7 17.7 46.4 59.7 198.6 128.1 140.3 169.9

Total debt 0.2 0.0 22.4 20.4 30.1 13.4 13.4 13.4

Total liabilities 20.7 25.0 118.3 127.0 305.7 224.8 236.1 266.2

Shareholder equity 8.4 12.0 62.4 110.0 106.1 127.4 148.2 170.1

Total funds employed 8.6 12.0 84.8 130.5 136.2 140.8 161.6 183.6

137.4%

4.4% 7.9% 18.3%

-55.6%

321.9%

1.7% 8.9%

FY19A FY20F FY21F FY22F

Revenue Growt h EPS Growt h

21%

8%

33%

28% 27% 29%

11%

36% 34%

36%

FY18A FY19A FY20F FY21F FY22F

ROE ROIC

0%

2%

4%

6%

8%

10%

12%

FY18A FY19A FY20F FY21F FY22F

EBITDA EBIT NPAT

0

20

40

60

80

-45%

-35%

-25%

-15%

-5%

FY18A FY19A FY20F FY21F FY22F

In t.

C o

v e

r (x

)

N e t

D e b t/ E

q u it y

(% )

Net Debt /Equity Interest Cover

8%

12%

16%

20%

24%

FY18A FY19A FY20F FY21F FY22F

Free Cash Flow Yield (%)

23 November 2019

Specialty Retail

Noni B Limited

Wilsons Equity Research

Page 3

Three key points  Online growth: NBL’s online sales growth has lagged its industry peers in the last 12-24

months, reaching 9.8% of total sales ($86.4m) in FY19a (CCX 44.0%). Given the

majority of EziBuy’s sales are online (83.4%), we believe this acquisition goes one step

closer to resolving this issue for management and forecast total online sales of $162.5m

in FY20e (17.6% of total revenue). EziBuy should complement NBL’s recent online

additions including MIA Beauty and Carry Ons (earnings immaterial at this stage).

 Store strategy: NBL remains committed to its physical store footprint and believes the

broad footprint will be a key driver for achiving its online growth targets. We forecast total

stores of 1,391 in FY21e and 1,397 in FY22e. However, we note NBL has flagged

potential growth of over 100 stores over this period, largely in SFH brands.

 Valuation: While our valuation increases 9.5% to $4.20/share (+5.5% under the

previous methodology), should NBL’s new strategy for online growth materialise we

would expect valuation multiples to re-rate. Close peer City Chic (CCX) currently trades

on FY21 PE of 20.0x and Adairs (ADH) currently trades on FY21e PE of 8.7x. While both

companies have different exposures their online businesses are growing strongly and

represent a material proportion of sales. We note the average of the two is 14.4x, well

above NBL’s current FY21e PE of 6.5x.

Changes to forecasts

We have upgraded our NPAT forecasts +0.8% to $38.2m in FY20e, likely marginally ahead

of guidance. Minimal changes were realised at the Interest or Tax line, while a higher D&A

charge for EziBuy offsets the majority of the benefits at the EBITDA line. We assume NBL

retains a 50.1% stake in EziBuy in FY20e.

 Revenue: Revenue forecasts increase 6.8% to $902.7m in FY20e, driven by the

consolidation of 50.1% of the EziBuy acquisition. We assume no revenue or cross-

selling synergies at this stage, but make a small change to our LFL calculations which

account for the remaining $14.9m increase in revenue.

 EBITDA: EBITDA forecasts increase 2.3% to $1.3m to $77.9m, with some margin

decline due to a marginal impact from EziBuy and adjust for guidance.

Table 1: NBL old vs new forecasts (A$m)

Source: Wilsons estimates

Old New Change Old New Change

Stores 1,385 1,391 0.4% 1,391 1,397 0.4%

Store Revenue 845.3 902.7 6.8% 861.5 974.1 13.1%

LFL grow th 0.0% -3.8% -383 bp 1.0% -0.4% -137 bp

Other 23.2 18.1 -21.8% 23.3 19.0 -18.5%

Total Revenue 868.4 920.8 6.0% 884.8 993.1 12.2%

Gross Prof it 538.8 560.3 4.0% 548.9 596.2 8.6%

Gross Prof it Margin 62.0% 60.8% -119 bp 62.0% 60.0% -200 bp

EBITDA 76.2 77.9 2.3% 76.8 78.5 2.3%

EBITDA margins 8.8% 8.5% -31 bp 8.7% 7.9% -77 bp

D&A 22.3 23.6 5.8% 22.3 23.6 5.8%

EBIT 53.9 54.4 0.8% 54.5 55.0 0.8%

Interest 1.2 1.2 1.3% 1.0 0.9 -7.0%

Tax 15.8 15.9 0.8% 16.1 16.2 1.0%

NPAT 36.9 37.2 0.8% 37.5 37.8 1.0%

FY20 FY21

23 November 2019

Specialty Retail

Noni B Limited

Wilsons Equity Research

Page 4

EziBuy snapshot

Founded in New Zealand in 1978, EziBuy originally sold womenswear and menswear

through catalogue retailing. It now also sells children’s clothing, homewares and gifts.

It is a large Australian and New Zealand multi-channel retailer, which has a customer base of

over 2m and reported NZ$144.6m of revenue in FY19, with 83.4% of sales coming from

online and the annual distribution of ~20m catalogues. Sales in EziBuy’s 6 physical stores

made up 16.6% of total revenue in FY19, an average of NZ$4.0m (A$3.8m) of revenue per

store compared to A$1.2m for Noni B.

In FY19 New Zealand retail sales in the clothing, footwear and accessories segment

represented 4.0% of total retail sales of NZ$3,909m, and demonstrated an increase of +4.4%

yoy. This stands in comparison to Australian clothing, footwear and accessory retail sales of

A$25,445m, which increased 3.3% yoy and represents 7.8% of total retail sales. Australia

currently represents 47.0% of EziBuy’s geographic sales mix and on a pro forma combined

basis Australia will make up 92.3% of group revenue.

Figure 1: EziBuy geographic sales mix Figure 2: EziBuy online/offline sales mix

Source: NBL company data Source: NBL company data

Noni B’s online penetration has historically underperformed peers in the clothing segment.

Despite growth of 21.0% yoy in FY19a, Online sales made up 9.8% of total sales. Noni B’s

closest peer, City Chic Collective, demonstrated Online sales growth of 36% yoy in FY19 and

made up 44.0% of total revenue.

On a pro forma basis, the EziBuy acquisition would increase Noni B’s Online sales to 19.6%

of the sales mix in FY20e, bringing Noni B’s Online sales figure in line with the sector

average of 18.9%.

Figure 3: Revenue segmentation – pro forma EziBuy and Noni B combined

Figure 4: Online revenue segmentation – pro forma EziBuy and Noni B combined

Source: NBL company data Source: NBL company data

Australia, 47.0%

New Zealand, 53.0%

Of f line, 16.6%

Online, 83.4%

EziBuy, 13.3%

Noni B Group, 86.7%

Online, 19.6%

Of f line, 80.4%

23 November 2019

Specialty Retail

Noni B Limited

Wilsons Equity Research

Page 5

Noni B (NBL)

Business description

Noni B Limited (NBL) is a ladies fashion retailer targeting the older, mature demographic (55+ years old) and recently acquired Pretty Girl Pty Ltd

to expand its retail network to more than 650 stores nationwide. Its current brand portfolio consists of Noni B, Rockmans, W.Lane and BeMe.

Investment thesis

Since the Alceon Group’s acquisition of a majority shareholding in NBL in FY15, NBL has recorded significant improvements in gross margins and

has shown early signs of success. In addition to our optimism about management’s experience we are encouraged by its conservative guidance.

Revenue drivers Balance sheet

 Consumer confidence

 Retail sales

 Store rollout

 Assets: $197.5m

 Equity: $106.1m

 Net cash: $6.6m

Margin drivers Board

 Selling and distribution costs

 Leveraging cost savings from larger store network

 Store volumes

 Richard Facioni: Chairman and Non-Executive Director

 Scott Evans: Chief Executive Officer and Managing Director

 Sue Morphet: Non-Executive Director

 David Wilshire: Non-Executive Director

 Jacqueline Frank: Non-Executive Director

Key issues/catalysts Management

 Robust store like-for-like growth

 Improved online retail sales

 New earnings base

 Scott Evans: Chief Executive Officer and Managing Director

 Luke Softa: Chief Financial Officer, Secretary

Risk to view Contact details

 Poor Mother’s Day trading period

 Aggressive discounting by peers

 Rapid decline in broader retail sales and consumer confidence

Address: Ground Floor, 61 Dunning Avenue, Rosebery, NSW 2018

Phone: +61 2 8577 7777

Website: www.nonib.com.au

23 November 2019

Specialty Retail

Noni B Limited

Wilsons Equity Research

Page 6

Disclaimers and disclosures

Recommendation structure and other definitions

Definitions at wilsonsadvisory.com.au/Disclosures.

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