Solid half-year result for Baby Bunting
Baby Bunting (ASX: BBN) reported a solid result for the half year to December 31, 2018, and previous guidance of earnings before interest, tax, depreciation and amortisation (EBITDA) of $25 million-$27 million for the 2019 financial year remained intact.
Revenue at $177.7 million was up 17% from $151.7 million. On a pro-forma basis, EBITDA at $11.6 million was up 25% from $9.3 million. EBITDA margins rose from 6.1% to 6.5% as the company benefited from improved gross margins following a period of heavy discounting from competitor closures in the previous year.
Net profit at $6 million was up 25% from $4.8 million. EPS (earnings per share) for the half year was 4.7 cents and DPS (dividends per share) was 3.3 cents, a 70% payout ratio. Net debt at December 31 stood at $6.6 million and the ratio of enterprise value ($283 million) to prospective EBITDA ($26 million) is 10.9.
Notwithstanding the long-term pressure from Amazon-related competitive pressures, Baby Bunting has a meaningful market share opportunity following the exit of most speciality players. This is expected to give it a “free-kick” by opening four to six stores a year over the next four to five years.
Management believes each new store can generate $7.5 million of revenue and $1 million of EBITDA by the end of the third year. This implies a business generating $600 million of revenue, $51 million of EBITDA and 8.5% EBITDA margins by the mid-2020s.
It is important that investors keep an eye on weakening consumer sentiment.
It could be possible that Baby Bunting can expect to sell fewer prams, cots and strollers. “The Mothers’ Club” could return to the “old school” where swapping, bartering and handing things down – as per the old days – become the norm. And if that was the case, it is likely the Baby Bunting valuation would head lower in response.