Morgan StanleyOverweight$10.00 COMMENTARYThe Reject Shop's...

Morgan Stanley			Overweight	$10.00
COMMENTARY The Reject Shop's revenue was -2% below Morgan Stanley estimate with the gross margin -100bp lower than expected. Both operating income and net profit beat the broker's forecasts. The broker thinks the market would respond positively to roll-out targets, unit economics objectives and capital management strategy of the company. The broker has upgraded the FY21 earnings estimate by 35%. Overweight with a target price of $10. Industry view: In-line. FORECAST Morgan Stanley forecasts a full year FY21 dividend of 0.00 cents and EPS of 21.00 cents. Morgan Stanley forecasts a full year FY22 dividend of 0.00 cents and EPS of 37.00 cents.
Ord Minnett			Buy	$10.34
COMMENTARY First half underlying earnings (EBITDA) of 31m by The Reject Shop exceeded Ord Minnett's estimate due to ongoing cost-outs in store. The broker notes the gross profit margin was lower than one year ago due to increased shipping charges and a one-off write-down of hand sanitiser. The cost of doing business (CODB) margin improved circa 230 basis points with store labour costs down to 13.6% of sales from 14.9% in the first half. Management expects the second half to suffer continued impacts from covid related issues. Buy rating and the target is increased to $10.34 from $10.13. FORECAST Ord Minnett forecasts a full year FY21 dividend of 0.00 cents and EPS of 22.80 cents. Ord Minnett forecasts a full year FY22 dividend of 0.00 cents and EPS of 42.10 cents.
Morgans			Add	$8.91
COMMENTARY The first half result for The Reject Shop slightly exceeded Morgans forecasts due to lower costs as well as depreciation and amortisation charges. The broker highlights gross margins were impacted by the write-down of hand sanitiser, while covid-19 impacted some stock availability and logistics costs. Despite this, it was considered strong growth with a number of internal improvements flowing through. Management highlighted expectations for nine new stores in the fourth quarter, and for the second half covid is continuing to impact sales and increased freight costs are also expected to continue. Add rating and the price target is increased to $8.91 from $8.89. FORECAST Morgans forecasts a full year FY21 dividend of 0.00 cents and EPS of 23.00 cents. Morgans forecasts a full year FY22 dividend of 0.00 cents and EPS of 35.00 cents.