Only good news...and a valuation still really cheap

1. Today, the company gave an update on its business, showing that sales growth is hardly slowing down :
- with an increase of 19.1 % after 5 months, vs + 19.8 % after 3 month, in line with like for like sales increasing by 22.7 % (vs 23 % after 3 months)
- and a "gross margin which remains healthy".
This performance looks strong, given there has been a significant slowdown for their e-commerce sales which grew by 137 % after 5 months (vs +192 % after 3 months). We know that this trend is not specific to SSG as some analysts indicate that the penetration of online sales in Australia has fallen back to 17 % vs 30 % at peak and 15 % pre-covid.
What's interesting in SSG' case is that the rebound of in-store sales has almost offset the slowdown of their e-commerce sales.

2. The company has also announced today that it has acquired its 6 remaining franchised stores in NSW.
This looks also good for 2 main reasons :
- they use most of their existing cash (around 20.6 m of net cash at 30.11.20) to do an acquisition where they have a very good visibility,
- this acquisition (expected to be completed in Feb 21) is also expected to have a large earning enhancing impact, the company expecting a full year effect of 1.5 m to 1.6 m on their NPAT, or 14 to 15 % of FY 6/20 NPAT.

3. The stock remains really cheap
The company gave an update of its net cash at 30.11.20 which shows that net cash has increased by 8 m since the end of June, which is really high given that the company was expecting to have some negative effect on working capital during that period (ex. inventory returning to a more normal level) and this period included a payment of 6 m of dividend.
Overall, it means that SSG has probably generated around 14 m of free cash flow on 5 month, which represents a free cash flow yield of 11.5 % (with only 5 months of free cash flow). It probably means that they are on a trend of around 20 % annualised free cash flow yield.