VSA Morning Technology Comment, 28/06/21
Samarkand Group PLC (LON:SMK) is a London headquartered, Cross-Border eCommerce ("CBEC") Group focused on connecting Western brands with China, the world's largest eCommerce market. Revenues are primarily derived from sales of own and Client health and beauty brands. The Group’s proprietary software platform, Nomad, covers commerce, distribution, logistics, payments and analytics. It provides a more direct-to-consumer route to the world's largest eCommerce market, reducing the risks, costs and barriers to entry. Samarkand, in a March 2021 IPO, listed on the London based Aquis Exchange and, in an oversubscribed placing, raised £17.0m at 115p per share to support future growth.
Trading Update - the Group has today published a trading update for FY 2021 (year end March 31st 2021). Samarkand reported a strong performance for the year with revenue increasing to £20.6m (FY20: £6.8m) including exceptional revenues of £5.8m. In FY 2021, the business moved to EBITDA positive with EBITDA growing to £1.1m (FY20: loss of £0.8m) and this, adding back IPO costs and share option charges of £0.5m in total, is ahead of our forecast of £1.5m. Samarkand intends to release its FY 2021 results in late July 2021. The Group’s excellent growth has been driven by the continued success of the Nomad platform as well as high levels of social selling in China. Following its admission onto the Aquis Stock Exchange on March 22nd 2021, Samarkand closed FY 2021 with £14.6 million in cash.
Samarkand’s cash balance will support the Group’s stated strategy at IPO to acquire brands to sell across its platform, expand geographically and invest in the technology platform. In May 2021, the Group completed the acquisition of Zita West Limited, a UK fertility supplement brand, and also acquired 51% of Babawest Ltd, which specialises in nutritional products and probiotics focused on the mother and baby sector. Samarkand reported today that both brands have been integrated well and that it aims to launch the brands into the cross-border eCommerce market in China before the end of 2021.
During May 2021, Samarkand also announced that it had attracted investment of over £3.0m from United Win Asia, a subsidiary of S.F. Holding Co., Ltd [(002352.SZ)] (“S.F. Holdings”). This is strategic investment. S.F Holdings is a leading express delivery company in China and Samarkand’s logistics partner for a number of years.
In June 2021, Samarkand began its international expansion through the opening of a Tokyo, Japan office. Japan is the 4th largest eCommerce market in the world and the Japan-to-China cross border market represents an attractive opportunity for the Group.
Samarkand, in our view, provides investors with an excellent opportunity to gain exposure to an eCommerce platform that provides brands with access to the largest global eCommerce market - China. Global retail eCommerce sales are forecast to have grown by 16.5% to US$3.9 trillion in 2020 (source eMarketer). China is estimated to have accounted for 54% of the global market with sales up 16.0% to US$2.1 trillion (RMB13.5 trillion).
Looking to the Group, for FY 2022, FY 2023 and FY 2024 respectively, we forecast underlying YoY revenue growth of 67%, 68% and 44% to produce revenues of £22.6m, £38.0m and £54.7m. Investment in growth post-IPO sees an EBITDA loss in FY 2022. For FY 2023, we forecast an EBITDA of £3.3m and margin of 8.8% and, on further strong revenue growth and the high operating leverage of the model, for FY 2024 we forecast an EBITDA of £9.6m and margin of 17.5%.
Our valuation, on a blended basis, combining Sum Of The Parts (SOTP), peer Group EV/Revenue and EV/EBITDA multiples together with DCF, values Samarkand at an EV of £151.7m and market capitalisation of £166.3m (given £14.6m net cash at March 2021 end).
Buy. Target price 300p.
• VSA Capital published a full initiation of coverage research report on Samarkand Group Plc on May 11th 2021. Please click here for the full report.
Phil Smith, Head of Technology | T: +44 (0)20 3617 5187 | E: psmith@vsacapital.com
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