VSA Morning Technology Comment, 05/08/21
Samarkand Group (NYSE:SMK)
Samarkand Group PLC (AQSE:SMK) (NYSE: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. SMK’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. SMK, 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 and is up 30% since.
Contract extension announced - SMK has today announced that it has signed an extension to its existing distribution agreement with luxury skincare brand 111SKIN. The contract, which has been extended until the end of July 2023, is for Samarkand's Nomad Distribution services and an expansion of its Nomad Storefront offering for Chinese eCommerce platforms.
Building on the successful three-year partnership, Samarkand will launch a Tmall Global flagship store in China for 111SKIN which will come into effect immediately and will launch later this month. Tmall Global is China's leading cross-border eCommerce platform generating approximately £360 billion gross merchandise value (GMV) in 2020 and is the home to many of the world's leading international brands.
SMK note in the announcement today that the extension of the relationship with 111SKIN demonstrates a growing desire for Western brands to increase their presence in China and underpins Samarkand's strong position in a market only set to expand further. We firmly support that view and it is supported by the strong growth reported in SMK’s recently published full year results.
Recent Full Year Results Highlight Strong Growth – On July 29th 2021, a trading update for FY 2021 (year end March 31st 2021) demonstrated strong performance for the year with revenue increasing to £20.6m (FY 2020: £6.8m) including exceptional revenues of £5.8m. In FY 2021, the business became EBITDA positive with EBITDA growing to £1.1m (FY 2020: loss of £0.8m) and this, adding back IPO costs and share option charges of £0.5m in total, was ahead of our forecast of £1.5m.
SMK’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, SMK closed FY 2021 with £14.6 million in cash. 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.
Funded For Growth - SMK’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 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.
Significant Market Opportunity – 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).
Forecast Growth and Margin Expansion - Looking to SMK, for FY 2022, FY 2023 and FY 2024 respectively, our new forecasts are for underlying YoY revenue growth of 52%, 74% and 53% to produce revenues of £22.6m, £39.3m and £56.3. Investment in growth post-IPO sees an EBITDA loss in FY 2022 of £2.3m. For FY 2023, we forecast an EBITDA of £4.0m and margin of 10% and, on further strong revenue growth and the high operating leverage of the model, for FY 2024 we forecast an EBITDA of £10.1m and margin of 18%.
We reiterate our Buy recommendation of 330p.
VSA Capital published a Full Year results update on Samarkand Group Plc on July 29th 2021. Please click here for the full report
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Phil Smith, Research Director, Technology | T: +44 (0)20 3617 5187 | E: psmith@vsacapital.com
VSA Capital Research | T: +44 (0)20 3005 5000 | E: research@vsacapital.com
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