VSA Morning Technology Comment, 04/10/21
Samarkand Group (AQSE:SMK)
Samarkand’s cross border eCommerce software is to be deployed by a major South Korea beauty brand to drive China online growth
Samarkand Group PLC (AQSE:SMK) (AQSE:SMK) is a UK-based eCommerce technology and retail Group focusing on connecting international brands with China, the world’s largest eCommerce market. The Group has developed a proprietary software platform, the Nomad platform, which is integrated across all necessary touchpoints required for eCommerce in China, including eCommerce platforms, payments, logistics, social media and customs.
The Group this morning announced that it has signed an agreement for the use of its Nomad Checkout cross-border eCommerce software platform with Amorepacific (AMRPF US) in South Korea, one of the world’s largest cosmetics companies, listed on the Korea Stock Exchange, with a current market capitalisation of over £7bn.
Amorepacific operates over 30 beauty and personal care brands popular amongst consumers in China and last year had annual revenues greater than £2.7bn, of which circa 20% was from its Chinese consumer base, according to SMK, mainly through third party distribution channels. SMK’s Nomad Checkout software will be deployed to a new direct-to-consumer eCommerce site developed by Amorepacific to serve the China market.
SMK’s Nomad Checkout software platform integrates with existing eCommerce software such as Shopify (TSX:SH., NYSE:SHOP) and provides merchants and consumers with a superior experience including improved site performance, Chinese payment methods, express logistics options and integrated customs clearance. According to the Group, together this results in:
• Faster shipping;
• Reduced customs stoppage rates;
• More convenience for consumers; and
• Lower customer service overhead for brands’ eCommerce business.
The Amorepacific site will use SF Express as the delivery provider and be powered by the Nomad Checkout SaaS solution which can be deployed by merchants of any size onto their existing eCommerce infrastructure.
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. Such is the effectiveness of the Group’s technology in driving Western brand volume into China, the IPO was followed by £3.1m in strategic investment by Chinese logistics giant, SF Holdings (SF Express).
SMK was founded in 2016 and is headquartered in London, with offices in Shanghai and Tokyo employing over 140 staff. A stated aim at IPO was to expand geographically including access to North East Asia-based brands looking to accelerate eCommerce growth into China. Today’s announcement is a very positive start to the Group’s growth in South Korea, particularly as it has been able to sign up a major cosmetics company as its first platform large client.
SMK is growing rapidly: in the year ending March 2021, orders processed for consumers in China increased 107% to 122k (2020: 59k). The number of product lines processed on the Nomad platform in 2021 was 2,111 (2020: 381).
Looking to SMK, for FY 2022, FY 2023 and FY 2024, our new forecasts are for underlying YoY revenue growth of 52%, 74% and 53%, respectively, 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%.
Our valuation, to set a 12-month price target, is based on a blend of three valuation methods, Sum of The Parts (SOTP) EV/Revenue valuation and an EV/EBITDA and a DCF. EV/Revenue sets a valuation of £124.7m (weighted 25%), a consolidated EV/EBITDA based on our FY 2024 when profit growth really kicks in, sets a valuation of £140.9m (weighted 25%) and our DCF, based on explicit forecast cashflows, produces a valuation of £189.1m (weighted 50%). We are, on a blended basis, valuing Samarkand at an EV of £166.6m and market capitalisation of £178.4m (given £11.8m net cash at March 2021 end).
We reiterate our Buy recommendation and target price of 326p
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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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