Daily Brief Consumer: Smartworks Coworking Spaces Ltd, BYD, Zomato, TSE Tokyo Price Index TOPIX, Health And Happiness (H&H), Lands’ End Inc, Dollar General, Build A Bear Workshop, Procter & Gamble Co, Guess? Inc and more

• Smartworks Coworking Spaces Ltd (1742134D IN) is looking to raise about US$120m in its upcoming India IPO. The deal will be run by Kotak, JM Fin, IIFL and Bob Caps.
• Smartworks Coworking Spaces Limited (SCSL) is an office experience and managed campus platform. 
• It focuses on leasing entire/ large, bare shell properties in prime locations from landlords and transforms them into fully serviced, aesthetically pleasing and tech-enabled campuses with daily-life and aspirational amenities.

• Total revenue increased by 26% in 2Q24, as sales volume grew strongly after March.
• We believe the operating margin will be stable due to the ability of battery production.
• We also believe the tariff penalty from Europe is not a concern in the long run, as BYD’s products have expanded to 77 countries.

• In this insight, we take a look at the Potential ADDs/DELs for the BSE SENSEX, 100, and 200 indices in the December 2024 index rebal event.
• We see four expected ADDs/DELs for BSE 100 and six expected ADDs/DELs for BSE 200.
• The BSE 100 handling rules for names without futures and options (F&O) sometimes punish companies that have enjoyed good share price rallies and Zomato could fall into such a trap.

• Since there was no difference in IR Disclosures between companies that increased valuations over past year and those that didn’t, it’s clear that improvement IR Disclosures alone won’t raise valuations.
• Since many companies with large market capitalizations have high foreign ownership, overseas investor engagement has had a positive impact on their high return on capital.
• TSE’s support for companies with small market capitalizations is a type of engagement that encourages companies whose engagement doesn’t reach them to think about their management strategies.

Health and Happiness International’s (H&H) H1/24 results were in line with expectations. The company reported weaker earnings and margins from its main Baby Nutrition & Care (BNC) business in Mainland China, amid structural industry challenges stemming from low birth rates in the country. That said, the weakness in BNC was partly offset by growth in the Adult Nutrition & Care (ANC) and Pet Nutrition & Care (PNC) segments. We note that ANC is now H&H’s largest revenue contributor, eclipsing BNC’s numbers. Going forward, we expect the company to continue expanding the ANC and PNC segments in Mainland China and beyond, while seeking to contain the revenue decline at BNC and maintain stable margins for the segment.

H&H has reduced inventory days and generated a small working-capital inflow, which led to positive FCF generation and net debt reduction. The company has adequate liquidity, following its successful refinancing activities in July.

• We are reiterating our Buy rating, $20 price target and projections with Lands’ End announcing 2QFY24 (July) results before the open on Thursday.
• We believe Lands’ End management, under CEO Andrew McLean has continued to refocus the company on driving higher returns via lower discounting, fashion and product newness and innovation, reduced overall inventories and licensing non-core categories and relationships.
• When combined with an increased emphasis on core winning categories such as swimwear and women’s bottoms in 2Q and shifting to outerwear in 2H, we believe Lands’ End is well positioned to drive near and longer term upside, and register returns we believe investors will find compelling.

• I first wrote my Deep Dive on Dollar General back in August 2023.
• While I wasn’t initially excited about owning a piece of the company despite the stock being down 40% from peak then, I changed my mind when the stock went down another ~25% following 2Q’23 earnings.
• After today’s dismal earnings, the stock went down almost another 30% since 2Q’23 earnings. 

• We are reiterating our Buy rating and $41 price target for BBW and materially raising our projections after the company reported record 2Q results which beat Street expectations on both the top and bottom line, as Build-A-Bear stores registered solid results, while the high margin Commercial and International Franchising segment began their expected material ramp a little earlier (and with greater impact) than we projected.
• Further, management continued to aggressively return capital to shareholders, purchasing 5% of BBW shares outstanding in FY24.
• With an early Halloween driving strong initial 3Q results, we believe management reiterating FY24 guidance for top line growth in low to mid single digits and low singled digit pre-tax income could prove conservative, and we reiterate our Buy rating and $41 price target for BBW.

• PG&E Corporation shared the results of its performance for the second quarter of 2024, demonstrating steady progress across various fronts.
• The company, known for supplying electricity and natural gas throughout California, reported core earnings per share of $0.31, culminating in a first-half total of $0.69.
• This performance aligns with the reaffirmed 2024 earnings guidance of $1.33 to $1.37 per share, signifying an increase of at least 10% from the previous year.

• We are lowering our projections and price target for GUESS?, but reiterating our Buy rating, after the company reported inline 2Q results, but lowered FY25 top and bottom line guidance, as the company continues to invest in marketing and infrastructure for their recently completed rag and bone acquisition and the launch of Guess Jeans, while the domestic store operations remain under pressure.
• While we fully understand and agree with the potential of the material opportunities for rag and bone and Guess Jeans to leverage the company’s global and licensing infrastructure in the longer term, we believe investor frustration in the near term will be a key theme.
• That said, with the GES dividend yield of approximately 6% and with our belief the upside potential of both rag and bone and Guess Jeans will become increasingly apparent relatively quickly, we are maintaining our Buy rating, even after lowering our FY25 projections below management guidance.