Mosaic Brands: 1H21 trading update
About the author:
- Author name:
- By James Barker
- Job title:
- Former Associate Analyst
- Date posted:
- 01 February 2021, 9:00 AM
- Sectors Covered:
- Retail, Technology and Telecommunications
- Mosaic Brands (ASX:MOZ) provided a 1H21 trading update, with 1H21 underlying EBITDA expected to be $40-45m (+22-38% yoy). While LFL sales were -15%, LFL gross profit was -5.6% for the half. The result also benefited from JobKeeper subsidies and the implementation of a cost-out program.
- MOZ ended the period with $65m of net cash ($110m cash; $45m debt), which was meaningfully improved on FY20 (although assisted by timing benefits).
- While we believe MOZ offers value relative to retail peers, however given the significant operational restructure underway, we maintain a HOLD rating and update our target price (login to view).
1H21 trading update – ahead of expectations
MOZ provided a 1H21 trading update. Key points: sales of $322m (-22% yoy); online sales +31% to $54.8m; LFL sales -15%; and underlying EBITDA of $40-45m.
Given 1Q21 JobKeeper was $24m, we estimate that a similar amount was received in 2Q21, amounting to $48m for the half.
However, given MOZ’s VIC portfolio (~20% of footprint) was closed for ~3 months, we estimate ~50% of the JobKeeper amount was used to offset closures, with the remainder a net benefit to underlying EBITDA.
MOZ noted that it now holds ~50% less stock vs the pcp, which is expected to assist GMs going forward. MOZ noted that December saw a big improvement in sales momentum, with LFL sales -4%.
Balance sheet on the improve
MOZ ended the 1H with $65m net cash ($110m cash; $45m debt). This was a material improvement from the FY20 result (net cash $3.6m – incl. $74m of debt).
We note that 1H21-end is typically a seasonally strong point from a cash/BS perspective, with inventory paid for in the months after the key trading period.
We forecast net cash to reduce to ~$20m by FY21-end and look to more commentary around the balance sheet and net asset/liability position at the upcoming result.
No guidance provided; inventory ‘well positioned for the 2H’
MOZ did not provide guidance, however noted that it is ‘well positioned for the second half’. We forecast EBITDA of $43.1m for FY21 (vs $45m loss the pcp). We assume a break-even outcome in the second half, largely reflecting JobKeeper benefits ending at the end of 1H21.
MOZ did note that recent weeks (i.e. recent COVID-19 lockdowns in NSW/QLD/WA) highlight that navigating challenges (due to COVID-19) remain in the 2H.
Investment view – HOLD and revised price target
Given MOZ’s primary exposure to shopping centre foot traffic and an older demographic, its business has experienced significant disruption from COVID-19. We look to the upcoming result for further detail regarding the outlook for the business and balance sheet position.
While we believe MOZ offers value for investors with a higher-risk tolerance, we await further evidence of the turnaround initiatives underway before becoming more positive on the stock.
As a result, we maintain a HOLD rating and update our price target (login to view). Key risks: continued COVID-19 impacts including further lockdown restrictions; consumer confidence; competition; FX movements; and failure to renegotiate lease terms.
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