Bell's Initiate with Buy recommendation, 12-month PT of $1.90

Bell Potter initiated coverage on 13 April with a $1.90 price target in 12 months.

Here are some highlights:

High growth global online retailer, large addressable market
CTT is a global online retailer of personal luxury goods, with an extensive catalogue of
over 1,300 luxury brands and over 160,000 products. Launched in 2017, the company
is achieving rapid growth with active customer numbers as at end-1H21 lifting +319%
YoY that includes a growing proportion of repeat customers. With traction being
achieved across multiple international markets (accounting for >90% of revenue),
CTT’s addressable market is large and growing ($460b in CY19 at ~6% CAGR (Bain &
Co)), offering significant growth prospects. Furthermore, CTT is leveraged to the shift
to online, with the online continuing to take market share, increasing by 22% in 2019 to
12% penetration and forecast to represent up to 30% by CY25 (Bain & Co).

Technology-led highly scalable business model
CTT’s business model is enabled by a proprietary technology platform to manage and
largely automate product and inventory management, pricing strategies, customer
acquisition, customer order fulfilment and global logistics. This provides foundation for
CTT to drive order volumes to significantly grow sales with minimal increase in
operating costs (excluding marketing investment). Furthermore, a key facet of CTT’s
scalable and capital efficient business model is the company’s drop-ship no-inventory
model where products ordered are sent directly to customers by the supplier. This
provides the advantages of a capital-light business, an attractive (negative) working
capital profile, an ability to source a vast array of products, minimal inventory risks and
access to a global addressable market.

Initiate with Buy recommendation, 12-month PT of $1.90
We believe CTT’s investment thesis is attractive on several fronts. These include: 1)
significant global growth prospects with traction being achieved in multiple markets; 2)
leverage to the online shift; 3) a scalable and capital efficient business model enabled
by proprietary technology & drop-ship inventory; 4) an extensive range of brands and
products sourced from a diversified supplier base; 5) backed with ~$45m net cash; and
6) driven by a founder led management team. At an FY22/FY23 EV/sales ~3.6x/~2.2x,
we believe valuation is undemanding and initiate with a Buy rating and a PT of $1.90.