16/11/2024

It looks like it’s been over 12 months since my last valuation (I didn’t date it). There’s been a 59% jump in the share price in the last year and I suspect the valuation has jumped also.

Let’s take a look!

@Slew has done some work on store roll outs so far this year (36) which seems to be not as good compared to last year at this stage (99 total rollout last year).

What do the analysts think will happen with earnings? There quite a few that follow Lovisa (a consensus of 14 on Simply Wall Street for forecast earnings data)

Source: Simply Wall Street

For FY25 the consensus NPAT is 95 cps and heading up steadily over the next few years. If this turns out to be close that’s a massive 125% ROE based on shareholder equity of 73 cps at the end of FY24. That’s the highest forecast ROE of all the businesses I hold IRL.

If I use McNiven’s Formula and assume ROE can be maintained at 125% (unlikely I believe), shareholder equity of 73 cps, 15% of earnings reinvested, 85% earnings paid as unfranked dividends (approx 2.8%), I get a valuation of $25 for a 10% required annual return. So even though the share price is well down from its 12 month high of $37.48, it doesn’t look cheap to me.

Source: Simply Wall Street

The other thing to note is that over the last 4 years Lovisa has paid out more in dividends than it had in NPAT! The dividends are well covered by cash flow, but over the same time debt has risen and cash reserves have fallen. Four years ago Lovisa had no debt and $38 million in cash. Now it has $54 million in debt and $35 million in cash. Still very conservative, however, I’m not sure if Lovisa can continue to pay out more dividends than NPAT continually. It’s not something you see a lot. Perhaps Brett Blundy can see the business spewing more cash into the future? He generally sees high ROE as KING, and debt as the enemy!

Source: Simply Wall Street

Looking at my current valuation I probably should have been selling Lovisa last month. For me it’s a hold for now. I don’t think it’s cheap enough at $29 per share.

Held IRL (0.8%)

11/2023?

FY23 NPAT $68.2M up 20.1% on last year, but was 7.5% below analysts consensus of $73.7M.

FY23 EPS 63.3cps up 16.6% on last year.

Final Dividend 16% lower at 31cps compared to 37 cps last year. Total FY23 dividends of 69cps representing a 109% payout ratio. This is a worrying trend. For high ROE businesses I would prefer to see more earnings reinvested into growth.

Franking reduced to 70% compared to 100% previously. With a higher proportion of overseas earnings this might be the norm from here on.

Total shareholder equity of $80M, with 110M shares outstanding at 30 June 2023. Equity per share of 72.7cps.

Return on Equity (ROE) at 85.3%. While this is likely the best in the ASX retail sector, it’s not as high as I was expecting (+90%).

Using McNiven’s StockVal formula assuming forward ROE of 85%, equity of 73cps, 10% of earnings reinvested, and a required annual return of 10%, I get a valuation of