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City Chic Collective (CCX) | Bankruptcy court

 

City Chic Collective (CCX)

COMPANY REPORT
Bankruptcy court
 

RESEARCH ANALYST

James Casey
+ 613 9602 9265ustralian
jcasey@baillieu.com.au

 

 

RECOMMENDATIONS

Rating BUY
Risk High
Price Target $3.70
Share price $3.20
   

In a nutshell: City Chic announced the potential acquisition of US retailer Catherines’ e-commerce business. CCX will become the “Stalking Horse Bidder” for the business which has annual online sales of c.$96m (US$67m). CCX also announced a $90m capital raising to assist with its strategic growth objectives. With significant upside available, we upgrade CCX to BUY.

Capital raising and acquisition potential: CCX announced a $90m capital raising ($80m placement and $10m SPP) to fund the potential acquisition of the e-commerce assets of Catherines, owned by Ascena Retail Group. The share placement at $3.05 represents a 4.7% discount to the last closing price of $3.20. The placement will result in approximately 29.5m shares being issued, representing 15.4% of existing capital.

Ascena files for bankruptcy: CCX has been selected as the “Stalking Horse Bidder” for the e-commerce assets of Catherines, owned by Ascena Retail. Ascena recently filed for Chapter 11 Bankruptcy. Catherines is a US-based specialty retailer of plus-size apparel with online sales revenue of US$67m. CCX’s initial bid is US$16m (A$23m), which may increase depending on other potential bidders. The acquisition is consistent with its strategy of expanding in the plus-size category through increasing its global online footprint.

Trading update: CCX reported FY20 sales revenue of $194.5m, below our forecast of $217m, having been impacted by store closures due to COVID-19. CCX’s Australian and NZ sales declined 21.5% in 2H20 vs the pcp. However, CCX reported a 114% increase in sales from its online website businesses. Underlying EBITDA for FY20 was $26.5m, compared to our forecast of $28.9m (pre-AASB 16), benefitting from JobKeeper payments of $3.7m in FY20.

Overall: We have incorporated the acquisition of Catherines into our forecasts given our view of the likelihood of success. The business will add further scale and geographic diversification to CCX’s North American business. We forecast operating earnings to grow 30% over the next two years given recent acquisitions. We upgrade our call to BUY (from Hold) and price target to $3.70 (from $2.60). Click here to read full report

 

 

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