The market is insane. Right now TPW is valued at a 30% premium on an enterprise basis to Adairs. Adairs has a far more diversified underlying business and does not need to raise capital or increase debt, we know this, it has been announced. In the preceding half, Adairs did 10x the EBIT of TPW.
This is one of, if not, the best run retailer in the country. If you take a closer look- they have been very conservative in their accounting for their entire listed history, they have maintained profitability through a very challenging retail environment, they are a much better business than they were before- they have a strong online and physical presence, they have bought Mocka and Mark Tuckey as well as significantly expanded their product range as well as significantly diversified their geographic presence. They were very conservative with the prices paid for the acquisitions that they have made, even at what was clearly the top of the cycle in retrospect. They have acted extraordinarily nimbly in the current context (do a direct comparison with KMD for instance- they are doing what ADH/AX1/PMV did at a much slower pace).
There is absolute madness in market pricing right now- on the hand you have businesses that still carry risk such as CSL trading at nose-bleeding multiples, and then you have very solid businesses such as Adairs that are still on single digit PE multiples. The doomsday scenarios have not so far eventuated, and it looks likely that the unemployment figures are not going to get worse given mobility is increasing moving forward. The market has something wrong, one way or another. The least risky thing to do, is buy high quality businesses that are profitable, linked to Australia’s domestic economy, that have acted with all stakeholders interests at heart. IMO there is no other business that typifies this more than ADH and I have accordingly increased my allocation here at much higher prices(>100%) than I initially bought. It is now my largest position, and I expect it to get larger over the coming months either via a rerate (preferable) or by continued purchases at ridiculous prices. I look forward to the dividends that will arrive in due course.
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