My only caution is that there is always execution risk. In the case of Adairs there are three main risks that need to be considered.
1. Getting seasonal trend wrong. Happened two years ago and smashed %GP due to aggressive discounting to clear inventory. Unlikely to happen again in my view.
2. Delays in getting new DC up to 100% operational efficiency. Covid-19 could impact. A mitigating factor in this is that the new DC is 3PL and thus spreads the risk somewhat.
3. The tremendous sales generation out of Mocka is illusory in that after all progess payments are made the business does not hold up. This is may biggest concern and can only be put to rest by seeing actual performance over the next 3 half year results.
I am still very confident of a good result for FY'20 and a significant re-rate should follow.
ADH Price at posting:
$2.40 Sentiment: Buy Disclosure: Held
(20min delay)