Strong Growth Ahead For Shaver Shop

This story features SHAVER SHOP GROUP LIMITED. For more info SHARE ANALYSIS: SSG

-Substantial market share
-Buying back franchises
-Dividend forecast for FY17
 

By Eva Brocklehurst

Shaver Shop ((SSG)), a specialist retailer in hair removal and personal care, has delivered strong sales growth over recent years, brokers observe, despite varied economic conditions that have prevailed.

Shaw & Partners considers the stock an attractive retail story, with strong underlying fundamentals. On most metrics relative to the 60 ASX-listed retailers the company is in the top quartile for like-for-like sales growth, stability of margins, sales per square metre and new store roll-out.

Shaver Shop listed on ASX this month, with both Shaw & Partners and Ord Minnett involved in bringing the stock to market. Shaw & Partners initiates coverage with a Buy rating and target of $1.45. Ord Minnett applies a Buy rating and $1.35 target, which it notes implies a 26.1% total return in the next 12 months.

The company is forecasting pro forma FY16 and FY17 corporate store sales of $106.2m and $127.1m respectively. Earnings are forecast at $12.5m and $14.7m respectively. Like-for-like sales growth of 2.5% is estimated for FY17, despite having achieved an average of 8.6% from FY13-15. Apart from the cycling of a strong comparable period, Ord Minnett envisages no reason why sales strength should reverse.

Key drivers of sales estimates are the impact of buying back franchised stores and the opening of new stores undertaken in FY15/16. Nine franchises are expected to be bought back in FY16/17 with 20 new stores being opened. As of June 30 there are 100 Shaver Shop stores across Australasia, of which 81 are company operated.

The company estimates there is up to $5.0m in additional earnings which can be acquired from buying back the remaining franchises. Shaver Shop aims to grow its network to around 145 stores. Online sales have consistently increased as a percentage of total sales, allocated to the store nearest the customer's delivery address.

Ord Minnett likes the combination of sales growth and buying back of franchises and believes earnings momentum can be maintained. A prudent capital structure enables the company to roll out stores at the same time as buying back franchises, the broker notes, without stretching the balance sheet.

The broker also highlights the fact that the company has a 28% share in the personal care appliances market, with barriers to competition provided by Shaver Shop's significant position and exclusive product range.

Risks? The company relies on suppliers to continue to drive innovation in products in order to maintain sales growth. A material reduction in the frequency or appeal of new products, or a change in the company's ability to secure a significant portion on exclusive terms, may impact earnings.

Shaver Shop doesn't just sell shavers. The company’s products include hair care, oral care and massage categories as well as air purifiers and pet grooming products. The company has long-standing strategic relationships with Procter & Gamble, which has brands such as Gillette, Braun and Oral-B, Conair, Panasonic, Philips and Remington.

The majority of the products the company retails are manufactured internationally, with Shaver Shop purchasing inventory from Australian distributors in Australian dollars. The company does not engage in foreign exchange hedging.

The company intends to target a dividend pay-out ratio of around 50% of profit in each year and pay interim dividends in respect of half year periods. Future dividends are to be franked to the fullest extent possible. Directors forecast a dividend of 4c for FY17, split 50:50 between an interim and final dividend.
 

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