Expanding Women's Segment With Brands Like Piombo And Potential Conbipel Acquisitions Will Improve Market Position

Key Takeaways

• Expanding the women's segment and leveraging popular brands are key strategies to drive revenue growth and maintain robust profit margins.
  
• Potential acquisitions and stable dividend strategies reflect efficient capital management and a focus on enhancing shareholder value.
  
• The company's growth is challenged by supply chain issues, rising labor costs, and integration risks related to M&A activities.

Catalysts

Operates as a fashion retailer in Italy and internationally.

• OVS plans to focus on expanding its women’s segment with new ideas and projects, which could drive future revenue growth by tapping into a core customer demographic.
  
• The company's strategy of leveraging successful brands like Piombo and B.Angel and their appeal to millennials and younger generations is expected to support revenue and margins as these segments expand.
  
• The continued strong performance of Upim and the ongoing recovery of Stefanel, aided by new creative leadership, suggest potential improvements in revenue and earnings.
  
• OVS is interested in expanding its network through potential acquisitions, such as parts of the Conbipel store network, which could significantly boost revenue and operational leverage.
  
• The possible future share buybacks and ongoing efforts to maintain a stable dividend payout signal efficient capital management, potentially improving earnings per share and overall shareholder value.

OVS Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming OVS's revenue will grow by 2.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.1% today to 5.1% in 3 years time.
• Analysts expect earnings to reach €89.0 million (and earnings per share of €0.32) by about January 2028, up from €51.5 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €72 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.8x on those 2028 earnings, up from 16.5x today. This future PE is greater than the current PE for the GB Luxury industry at 14.4x.
• Analysts expect the number of shares outstanding to grow by 3.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.13%, as per the Simply Wall St company report.

OVS Future Earnings Per Share Growth

Risks

• The company has experienced delays in its supply chain, particularly due to the prolonged Suez Canal closure, leading to increased inventory levels, which could negatively affect working capital and cash flow management.
  
• OVS faces rising labor costs, partly due to a new labor agreement, which could put pressure on operating margins if sales growth does not keep pace.
  
• The company has been making significant capital expenditures, and though these are expected to decrease, any mismanagement or unforeseen requirements could impact net margins and free cash flow.
  
• There is uncertainty regarding the Suez Canal situation and its resolution, which could continue to cause disruptions and increased costs if not managed effectively, affecting overall profitability.
  
• OVS' growth strategy includes acquisitions and M&A activities, such as potential deals with Conbipel or acquiring former Benetton franchise stores, which may involve integration risks and could impact earnings if not executed well.

Valuation

• The analysts have a consensus price target of €4.1 for OVS based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.8 billion, earnings will come to €89.0 million, and it would be trading on a PE ratio of 19.8x, assuming you use a discount rate of 16.1%.
• Given the current share price of €3.46, the analyst's price target of €4.1 is 15.6% 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.