One Consumer Discretionary Stock With Decent Growth Prospects

As the market players are aware, the global economy witnessed the negative impacts of the COVID-19 outbreak. The impact was also felt on several companies as lockdowns were imposed to restrict the spread of COVID-19. However, some companies are anticipated to perform well. This company possesses a robust platform and has a clear strategy, zero debt as well as the right sized organisational footprint. This company has posted decent results for first half of FY 2021. Notably, the stock price of this company witnessed a rise of ~66.66% in 9 months. Notably, in the time frame of past 1 year, this stock rose by ~85.18%.

Cavalier Corporation Ltd

Summary

  • CAV has managed to report strong uptick in the profitability in H1FY21, benefitted from higher sales of woollen carpet, the sell down of synthetic carpet stock and the profit from the Auckland property sale as well as leaseback. Further, its normalised EBITDA stood at $4.8 million.
  • CAV is anticipating an improvement in Australian carpet sales volumes driven by the receding impacts of supply chain disruptions and pandemic effects.
  • The company has mentioned that the earnings for H2 FY 2021 would not be tracking what the company has witnessed in H1 FY 2021.

Cavalier Corporation Ltd (NZX: CAV) operates throughout the soft flooring market. The company buys wool, produces yarn, as well as designs and makes broadloom carpet. Notably, the company’s operations are based in NZ and Australia with exports throughout the world.

Healthy Profitability Growth in H1FY21 (For the Period Ended 31 December 2020)

Although the revenue was down during the period, the results met the upper end of the guidance range ($4.0 million to $5.0 million) provided in December 2020 with 61% on pcp in its normalised EBITDA to $4.8 million. The company recorded robust growth in its profit after tax to $4.3 million, up by $5.5 million over the PCP, with the $3.0 Mn improvement in the underlying business performance as well as the $2.5 Mn net gain on the sale as well as leaseback of the Auckland property.

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Revenue, however, declined by 6% YoY to $60.3 million. Notably, Australian carpet sales volumes witnessed the impact of the supply chain disruption as well as COVID-19 lockdowns. Elco Direct, CAV’s wool buying business, witnessed the impact of subdued offshore demand for NZ wool. However, while volumes witnessed the rise of 12%, the average selling price was down.  

Financial Summary (Source: Company Reports)

Appointment of a New Chief Executive Officer

CAV, on 23 June 2021, has announced the appointment of Greg Smith as the new Chief Executive Officer of the company. Greg was earlier the CEO of Icebreaker. In the release dated 23rd June 2021, it was mentioned that Greg would be commencing in the role on 26th July 2021. Present Cavalier CEO, Paul Alston, would remain with the leadership team for the time span of up to 3 months in order to ensure the smooth transition.

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Greg has a rich experience of international business, running iconic New Zealand companies, as well as further assisting those companies in gaining scale in the global arena.

Signed up for the NZFAP

Bremworth, the 100% pure wool carpet manufacturer of New Zealand, has signed up to the New Zealand Farm Assurance Programme (NZFAP), hinting its support for as well as adoption of the national wool standard.

Bremworth collaborates with 20 other wool industry members to shift towards sourcing their wool from 6,800 accredited sheep farms across New Zealand that comply with the standards established by the NZFAP.

Stock Information

CAV has articulated its growth strategy for H2FY21 with a continued focus on launching Bremworth Lifestyle (affordable wool) collection ranges as well as rolling out of the new Bremworth marketing campaign.

Additionally, it will further augment its retailer networks, particularly in Australia along with sustaining its focus on innovation and the introduction of new beautifully designed carpets. It will also focus on operational improvements including the initiatives to reduce the cost base as well as mitigate the supply chain disruptions.

The company highlighted that the earnings in H2FY21 will not track the trend achieved in H1FY21, partly due to the increased marketing spends in H2 FY 2021 towards transformation.

There have been indications of the favourable economic growth in NZ as well as Australia which could benefit the Bremworth retail sales. NZ woollen carpet sales volumes for FY 2021 are anticipated to witness an increase on the YoY basis.

The stock of the company ended the session at NZ$0.500 per share, down by 3.85% on 23rd July 2021.

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