LOV – Morgans rates the stock as Add

Lovisa Holdings’ FY19 result outpaced Morgans estimates by roughly 3% to 5%, thanks to strong revenue from acceleration in like for like sales.

The broker notes the growth absorbed substantial regional investment returning very strong cash generation, resulting in a 22% increase in the dividend, and a 2.6% rise in EPS.

The broker says the company’s hedge rate will pose a hurdle in FY20 (-9%), in part offset by lower operating costs. Morgans upgrades sales growth and top-line earnings assumptions but downgrades EPS estimates to account for higher depreciation and amortisation.

Add rating retained despite high multiples, the broker expecting meaningful growth will be logged once operating leverage returns. Target price rises to $13.66 from $13.15.

Sector: Retailing.

Target price is $13.66.Current Price is $12.30. Difference: $1.36 – (brackets indicate current price is over target). If LOV meets the Morgans target it will return approximately 10% (excluding dividends, fees and charges – negative figures indicate an expected loss).

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