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Valuation of $5.00
Added 2 months ago

20/03/2024

Following a strong 1H24 result, and a promising trading update for the first seven weeks of 2H24, the share price has increased from $4.00 to $5.24 (up 31%). My previous valuation for Universal Store Holdings (UNI) in January this year was $4.40. Has the share price got ahead of itself, or has the business outlook materially improved to justify a higher valuation?

For 1H24 sales were up 8.5%, gross profit margins increased +80 points to 59.7%, and NPAT was up 16.7% pcp to $20.7 million, and adjusted earnings per share 26.6 cps. They held net cash of $27 million. A nice fully franked 16.5 cps dividend was declared (3.5% yield, 5% gross) up 18% pcp, and that’s for the first half only!

Six new stores opened, three of these were Perfect Stranger stores which are doing exceptionally well.

The Universal Store (US) has performed OK in a challenging half for retailers, but sales were down 1.4%. The absolute standout for UNI has been the Perfect Stranger (PS) stores. Sales growth has been exceptional.1H24 sales were $6.6 million, up 59.7% pcp. There are currently 11 PS stores, and there are plans to open another 4 - 8 stores in 2H24.

de6267091cf4d2b4612903014aaf72e711ba0f.jpeg

UNI have experienced uplift in sales in US (4.5%) and PS stores (56.5%) for the first seven weeks of 2H24. CTC sales are down 0.5%.

f5b1e174f4c7c06684910624dc71c1a4e593c0.jpegConsensus is for FY2024 NPAT of $28.46 million, or $7.76 million NPAT generated in 2H24 (27% of full year sales). This equates to $0.37 per share.

Valuation

Shareholder equity has increased to $151.3 million at 31st December 2023, or $1.97 per share. Consensus NPAT is $0.37 per share, and therefore ROE should be c. 19% this year. Assuming further rollout of the high performing Perfect Stranger stores, we could see ROE lifting to +20%. This is inline with analyst consensus and historical ROE over the past 3 years:

ffa7cff2d272fea7fa289120c722eb7c7ed24f.jpeg

Source: Commsec

Using McNiven’s formula assuming Equity of $1.97 per share, ROE of 20%, 30% of Earnings reinvested, 70% of earnings paid out as fully franked dividends, and requiring an annual return of 12%, I get a valuation of $4.93, say $5.00. At a 11% required return the valuation would be $5.54. At $5.00 that puts UNI on a PE of 13.5, which is at the lower end of PE over the last 3 years.

Held IRL (1.4%)

January 2024

Universal Stores passes all my investment filters and I added some IRL on a dip in October 2023. Over the next few years I am expecting double digit earnings growth due to continued store rollouts and a forward ROE of over 20% (providing we see a soft landing in the economy). It has a very healthy balance sheet and holds more cash ($21 million) than it has debt ($15 million). I expect it will pay a 5% fully franked dividend in FY24 at a 70% payout ratio.

Like Lovisa, the Universal Store attracts a younger demographic seeking the latest fashion wear.

On a forward PE of 13x (FY24) and a PEG ratio (PE/earnings growth) of 1.2, the share price still looks reasonable at $4.40 (providing double digit earnings growth continues).

Using McNiven’s formula Universal Stores could return investors over 12% per year based on the current share price of $4.40. For an 11% return you could pay up to $5.00 per share. For a better margin of safety, I’d prefer to add shares at around $4.00, or better still wait until the next trading update and reassess expected FY24 earnings.

Held IRL (1.2%)

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#1H24 Result
Last edited 3 months ago

Universal Stores (UNI) reported a strong 1H24 result today sending the share price up 15%. Sales were up, gross profit margins up, NPAT up 16.7% pcp, net cash of $27 million, 6 new stores opened (3 Perfect Stranger which are doing exceptionally well). Nice fully franked dividend declared yielding 3.5% (5% including franking credits) for this half only! :) They generally plough back c.30% of their earnings back into growth and that’s likely to be on a ROE upwards of 20%.

I tuned into the end of the webinar during question time (following the Lovisa call) and I was blown away by the enthusiasm of these two young women leading the Universal team. They really have their heads around the business, their passion and smiles were infectious, and the business culture at Universal seems to be really positive. I am pleased I invested when the market was negative on their prospects.

df668bb0c734a7f404cc441832013a10e53325.png

CEO Alice Barberry, and CFO Renee Jones at the results webinar this morning (22/02/2024)

Commenting on the results, Alice said:

The results in the half demonstrate our resilience and ability to manage our business as macro-economic conditions fluctuate. Our team has successfully managed margins, inventory, and operating costs to deliver earnings growth in a difficult and subdued consumer spending environment. Our growth ambitions for Universal Store remain unchanged, as does our long-term strategy.

I am also pleased with the progress we continue to make in developing our emerging retail concepts – Perfect Stranger and THRILLS. These brands and retail formats are continuously improving their offerings and adding the capabilities necessary to successfully scale and deliver attractive financial performance over the years ahead."

Here are the highlights from the Announcement:

• Group sales of $158.0 million, +8.5% versus prior corresponding period (“pcp”), primarily reflecting added CTC contribution

- Universal Store (US) sales of $133.2m (-1.4% vs pcp), LFL sales -5.4%2

- Perfect Stranger sales of $6.6 million (+59.7% vs pcp)

- CTC sales of $25.3m (+4.2% proforma vs pcp)

• Gross profit margins +80 basis points versus pcp, to 59.7%

• Underlying EBIT of $30.8 million, +8.1% versus pcp4

• Statutory net profit after tax (“NPAT”) of $20.7 million (+16.7% versus pcp)

• Adjusted earnings per share (“EPS”) of 26.6 cents per share (“cps”)

• Net cash of $27.4 million as at 31 December 2023

• 6 new stores opened during H1 FY24; 3 Perfect Stranger (“PS”), 2 Universal Stores (“US”) & 1 THRILLS store, bringing total Group stores to 100 (excl. webstores)

• Interim FY24 dividend of 16.5cps declared (up from 14.0cps in prior year).

-ENDS-

More later with another crack at the valuation.

Disc: Held IRL (1.2%)

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#Broker/Analyst Views
stale
Added 12 months ago

25-May-2023: Wilson's Broker Report: Wilsons-Universal-Store-UNI-Still-A-Quality-Outfit-Rec-Overweight-25-May-2023.pdf

Titled "O/W: Still a Quality Outfit", Wilson's maintain their "Overweight" rating on UNI, however their target price has been reduced by -40.0% to $4.20/share (blended DCF and PE), which reflects average EPS growth of 14.7% pa over three years. Valuation downgrades are compounded by FY24e multiple compression (-7.9% since Wilson's last report on UNI). UNI is trading on a FY24e PE of 10.7x, -16.7% vs. peers on 12.8x. Wilsons believe a premium is warranted due to UNI’s growth profile.

So far today (Friday 26th May 2023 at 3:30 Sydney time) UNI is down -4.46% (or down 14 cps) to $3.00/share.

Disclosure: I do not hold UNI shares.


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#TRADING UPDATE
stale
Added 2 years ago

Full ASX announcement  MACQUARIE CONFERENCE & TRADING UPDATE

Going straight to the guidance:

• We anticipate FY22 sales to be between $205m and $207m ($210.8m in FY21) and underlying EBIT to be between $30m and $31m ($44.0m in FY21)

• We expect to finish FY22 with inventory in line with plan with aged inventory at historical levels

• We expect ‘net cash’ in excess of $20M

Disc: not held.

Interested to see how retailers are faring in general given the turbulent H2. Looks like EBIT for UNI will be down over 30% on FY21.

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#ASX Announcements
stale
Added 2 years ago

Solid H2 FY22 sales to date, delivering;

Total sales growth of +6.9% on H2 FY21 (pcp)

Online sales growth of +27.3% on H2 FY21 (pcp) (+119.3% vs. H2 FY20)

Despite ~25% of trading days being lost in H1 FY22 (Jul-Nov 2021), resulting in H1 sales being down 8.2% vs pcp, our FY22 YTD sales are now down just 2.3% on FY21, aided by growth in H2 sales and successful new store openings

LFL sales are currently a less insightful measure as the year progresses and we again cycle periods of material store closures in prior year(s). YTD FY22 LFL sales (incl. online) are down 2.8% vs pcp (and +28.7% vs FY20) 9 1

We anticipate FY22 sales to be between $205m and $207m ($210.8m in FY21) and underlying EBIT to be between $30m and $31m ($44.0m in FY21)

We expect to finish FY22 with inventory in line with plan with aged inventory at historical levels

We expect ‘net cash’ in excess of $20m TRADING UPDATE FY22 GUIDANCE 1. LFL is calculated on 4/4/5 weekly basis and excludes closed stores. FY22 YTD is up to week ending 12th June 22 and results are un-audited

We are pleased with the sales momentum we are delivering in H2, including in our most recent trading results as interest rate increases and other increases in costs of living have become more apparent in the market

As previously flagged, we have continued to invest in our people, new office and distribution centre projects, as well as improved technology – all necessary investments for scale and continued growth

We are mindful of the ‘cost of doing business’ challenges across supply and service chains impacting retail sector

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#Business Model/Strategy
stale
Added 3 years ago

Had cause to look at this one for a non-investing reason. If you remember the ASX outage last year, it was the day of the IPO. Not a single share got traded. Ominous. Well not so, the shares have been on a tear since. With the world in the strange place that it is, it could be due to the extra cash sloshing around. Everyone needs a new shirt to look good in lockdown. Right?

The IPO followed the conglomerate of capital investors purchase from the founders a few years earlier. The listing process raised around 150M allowing sell down by the partners and left the business in a better financial place paying down debt and increasing cash.

Since the IPO the business has executed well. Stores and online sales have seen strong growth. Management plan to almost double current store numbers from the current 60 something locations.

There has been a recent significant acquisition by a funds manager which provides some confidence, however, it depends on their motivation. Will watch to see how long they hold.

It is a crowded market and a hard place to differentiate. This is a place where efficiencies matter and reputation is everything.

If they have executed this quarter well, the shares should see another positive boost.

 

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