VSA Morning Technology Comment, 02/11/21
Samarkand (Samarkand Group PLC (AQSE:SMK))
Samarkand – UK Brand Acquisition
Samarkand Group PLC (AQSE:SMK) (SMK) has announced that it has signed an announce the acquisition of Napiers the Herbalists (“Napiers”). The Company was originally founded in 1860, by the renowned herbalist Duncan Napier in Edinburgh. Napiers is an iconic Scottish brand which still operates from its original apothecary store in Bristo Place and its website Napiers.net. The brand has heritage; it has for more than 160 years provided customers with food supplements, herbal remedies, skincare and wellness products.
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.
Napiers is growing internationally, more recently supplying consumers in Asian markets through its partnership with a large Korean skincare brand and its work with SMK as its distributor. SMK has had a commercial relationship with Napiers for more than 3 years.
The combined assets of Napiers generated £1m of revenue in the year ended 31 March 2021 and an EBITDA of £0.24m on an unaudited basis. We see the newly acquired business underpinning our forecasts for the SMK.
The Napiers acquisition comprises: Initial consideration of £1.7m in cash on a net debt net cash basis; a deferred consideration of £0.1m in cash payable between 6 and 9 months after the completion date; and a contingent consideration of up to US$0.7k payable upon certain events occurring post acquisition which will be settled either in cash or the issuance of new Ordinary Shares, at the discretion of SMK.
The growth drive follows the March IPO at which £17m was raised with the upsized deal enabling such acquisitions combined with the £3.1m strategic placement by Chinese logistics giant, SF Holdings (SF Express). SMK intends to expand Napiers products and services in its home market of the UK and internationally in China and beyond. Samarkand has previously acquired wellness brands Probio7, Zita West Products and Baba West. The Group invested in brand marketing and using SMK’s Nomad cross border eCommerce software platform and supply chains, grew their market reach into Asia and beyond.
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 Northeast Asia-based brands looking to accelerate eCommerce growth into China.
In October 2021, the Group announced that signed an agreement for the use of its Nomad Checkout cross-border eCommerce software platform with Amorepacific in South Korea, one of the world’s largest cosmetics companies and 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 of greater than £2.7bn, of which circa 20% was to its Chinese consumer base.
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. Our Sum of The Parts valuation sets a valuation of £124.7m, a consolidated EV/EBITDA based on our FY 2024 when profit growth really kicks in, sets a valuation of £140.9m and our DCF, based on explicit forecast cashflows, produces a valuation of £189.1m. 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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