Sohn: Regal says Temple & Webster can doubleSarah TurnerRegal...

Sohn: Regal says Temple & Webster can double

Sarah Turner

Regal Funds Management’s Todd Guyot believes online furniture retailer Temple & Webster can double over the next three years.

He told the Sohn Hearts and Minds virtual investment conference that COVID-19 has supercharged Temple & Webster’s growth profile since March, with the company reporting 74 per cent revenue growth in financial year 2020.

Consumers turned to online shopping in the pandemic but even as the economy started to reopen in July and August Temple & Webster has continued to perform, the fund manager said.

Regal's Todd Guyot. Anthony Johnson

“Temple & Webster actually saw an acceleration in growth in July and August being up over 160 per cent versus PCP and being up over 100 per cent since September,” he said.

The company’s performance during reopening “demonstrates the impact of repeat customers, which is a direct correlation with the customer experience. If customers get what they want correctly and in a timely manner, they will more than likely come back,” he said.

“’The obvious question is what happens when COVID-19 ceases to be such a major issue,” he said.

In Temple & Webster’s case, what will be important is that it continues to benefit from a progression up the “online segment penetration curve” and continues to grow market share, he said.

The firm has now reached scale, he said, “reflected by the earnings generated in the first quarter of 2021 being higher than what was achieved in all of 2020 – a trend which will continue.”

Scale delivers Temple & Webster with a “virtuous model,” he said. “Meaning that as is gets bigger it gets better.”

And the company is “one of those much sought-after companies that carries negative working capital. So in layman’s terms, its customers purchase the product up front and its suppliers are paid at a later date.”

“The faster that Temple and Webster grows, the more cash its able to generate and the more cash its able to generate, the faster it can grow,” he said.

My Guyot compared the market’s view on Temple & Webster’s growth profile to that of US online home retailer Wayfair.

“The market has consistently underestimated the growth that Wayfair has been able to deliver, which we consider will likely continue to be the case for Temple & Webster.

“So in conclusion, buy Temple & Webster. Look through short term periods of market volatility and go on what is the early stage of a very long journey,” he said. It’s a stock “we think can double over the next three years."

Source: AFR 13/11/2020 11:30am