Stealth Global Holdings Ltd: Result & Guidance Come from a Position of Confidence
Stealth Global Holdings Ltd
Result & guidance come from a position of confidence
Stealth Global Limited (ASX:SGI) has reported FY21 results in-line with RaaS forecasts while providing FY22 revenue & EBITDA guidance also in-line with RaaS forecasts. This demonstrates a “maturing” of the business and business model following a period of COVID disruptions (both domestically and in the UK), people and eCommerce investment and acquisitions. From an acquisition viewpoint, C&L Tools has delivered on promised acquisition metrics for the first 7-months with a solid 2H21 contribution. C&L will now deliver a further 5- months for the first time in FY22, while the highly synergistic Skipper Transport Parts (STP) acquisition will contribute for the first time for ~10-months in FY22. Domestically the core Australian business delivered ~+11% sales growth in 2H21 and will cycle weak conditions for much of FY22. This is key to the $95m- $100m revenue and $5.7m-$6.3m EBITDA guidance management has provided for FY22, which is also in-line with current RaaS estimates. Delivery of these numbers implies a PER of 6.0x FY22 and EV/EBITDA of 4.8x against larger peer EV/EBITDA’s in FY21 of 6.1x (PGC) and 11.2x (CYG). An EV/EBITDA multiple of 6.0x FY22 would translate to a share price of $0.20/share. Our DCF is closer to $0.32/share, capturing upside from domestic cost base leverage and BSA.
Business model
Stealth Global Holdings is a broad-line distributor of industrial, maintenance, repair, operating (MRO), safety, workplace supplies and other related products and services. Stealth looks to differentiate with its broad in-stock product offer, supply chain infrastructure, deep supplier relationships and eCommerce channels, serving customers of all sizes. Stealth provides supplies and solutions for every industry through a portfolio of five distribution businesses covering business, trade, retail, service and specialist wholesale. The subsidiary brands are Heatleys Safety & Industrial, C&L Tool Centre, Skipper Transport Parts, Industrial Supply Group and BSA Brands (UK) a joint venture with Bisley Workwear. ~95% of revenue is driven from repeat customers.
2HFY21 underlying momentum should continue into FY22
SGI saw a solid recovery in core Australian sales over 2H21 while C&L Tool Centre delivered numbers in-line with acquisition metrics. SGI will again cycle relatively easy sales trading conditions in its core Australian base over the next 6-months and be aided by a first-time contribution from the Skipper Transport Parts acquisition and full 1H contribution from C&L Tool Centre (1-month in the PCP). BSA should also get a clearer run in the UK as lockdown eases. Company guidance implies an air of confidence around the above.
Base case valuation remains A$0.32/share fully diluted
Our base case DCF valuation for SGI remains $0.32/share, recently upgraded following the acquisition of Skipper Transport Parts. The FY21 result was in-line with expectations as was FY22 guidance, which suggests our key drivers and assumptions are on-track. Our numbers incorporate 6%-8% sales growth over the forecast period, and stable to improving gross margins driven by both scale, private label and business mix.
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