Adairs FY20 result was circa 10% above Morgans forecast. The company also reported a strong start to 1H21, according to the broker, but no FY21 guidance was provided.
The analyst attributes the strong result to product execution, elevated demand for home-related products, JobKeeper, tight gross margin and cost management and a strong rebound in trading conditions following store closures resulting from covid-19.
Morgans forecasts 16% earnings (EBIT) growth in FY21, with the company to benefit from an incremental contribution from Mocka (the New Zealand retailer acquired in late 2019). Additionally, the company’s online platform is delivering growth akin to pure play peers, while the store network remains very profitable.
The company declared a final dividend of 11 cents, which translates into around 6.2% fully franked, according to the broker. Add rating maintained. Target rises to $3.80 from $2.62.
Target price is $3.80.Current Price is $3.12. Difference: $0.68 – (brackets indicate current price is over target). If ADH meets the Morgans target it will return approximately 18% (excluding dividends, fees and charges – negative figures indicate an expected loss).