Emerging Markets Entry And AI Will Strengthen Future Engagement In Luxury Goods Market

Key Takeaways

• Strategic localization and entry into emerging markets, such as China, offer significant growth opportunities and revenue enhancement as these markets mature.
  
• Investment in AI for improved personalization boosts customer satisfaction and productivity, potentially enhancing net margins through realized efficiencies.
  
• Heightened promotional activity, challenging market conditions, and potential U.S. tariffs could impact Cettire's profitability, revenue growth, and pricing competitiveness.

Catalysts

Engages in the online luxury goods retailing business in Australia, the United States, and internationally.

• Cettire's focus on enhancing its supply chain and growing engagement with luxury brands and third-party inventory holders is expected to improve inventory levels and supply-demand balance, leading to potential increases in sales revenue as market conditions normalize.
  
• The company's strategic localization efforts and successful entry into emerging markets, like China, present significant growth opportunities and could significantly enhance revenue as these markets mature.
  
• Improvements in customer engagement and repeat purchase sales, along with increased average order value, are expected to underpin long-term revenue growth, as they demonstrate customer loyalty and increased spending capacity.
  
• The investment in AI and data science to enhance personalization and customer experience is anticipated to boost productivity and customer satisfaction, likely positively impacting net margins as efficiencies are realized.
  
• Cettire's financial model of remaining self-funding with no debt, along with a significant cash reserve, provides flexibility for strategic investments and targeted marketing initiatives, potentially driving sustainable earnings growth while maintaining profitability.

Cettire Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cettire's revenue will grow by 15.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.3% today to 2.4% in 3 years time.
• Analysts expect earnings to reach A$29.3 million (and earnings per share of A$0.08) by about April 2028, up from A$2.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.9x on those 2028 earnings, down from 108.4x today. This future PE is greater than the current PE for the AU Specialty Retail industry at 19.3x.
• Analysts expect the number of shares outstanding to decline by 0.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.32%, as per the Simply Wall St company report.

Cettire Future Earnings Per Share Growth

Risks

• Cettire experienced a decrease in delivered margin year-on-year by 18% due to heightened promotional activity, which could impact profitability and earnings.
  
• The global personal luxury goods market declined by 2%, indicating a challenging demand environment that might affect future revenue growth.
  
• The company's revenue growth rate of 11% reflects the difficult market conditions, potentially impacting its ability to sustain historical growth levels.
  
• Marketing spend has been reduced, which led to a lower customer acquisition rate, potentially affecting future revenue growth and market share expansion.
  
• The imposition of potential U.S. tariffs could affect margins and pricing competitiveness, posing a risk to revenue and profit margins in the U.S. market.

Valuation

• The analysts have a consensus price target of A$1.705 for Cettire based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$3.27, and the most bearish reporting a price target of just A$0.9.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$1.2 billion, earnings will come to A$29.3 million, and it would be trading on a PE ratio of 26.9x, assuming you use a discount rate of 7.3%.
• Given the current share price of A$0.68, the analyst price target of A$1.7 is 59.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.