Billabong: Waves Of Internal Change Driving Margin Expansion

Billabong is back on the market's radar following evidence that the last two years of internal changes are delivering measurable results. Canaccord believes this is an inflection point in a turnaround for the 42-year old Australian global brand manager and retailer. Breaking from consensus, we recently initiated coverage with a $0.90/share 12-month price target. This target is based on an EV/EBITDA valuation, derived using a 10.7x multiple of our FY16 forecast earnings. Our valuation increases to $1.14/share based on our FY17 earnings estimates. We view Billabong as a margin expansion story in the short term, as management implements its internally focused strategy. This centres around prioritising its brand message, simplification of the supply chain, rationalisation of the product SKU count, focused merchandising planning and roll out of its Omni-channel distribution system. EBITDA margins increased from 5.9% in FY14, to 6.2% in FY15, and management has indicated a desire to return EBITDA margins in the double digits in the coming few years. Canaccord believes this is achievable through successful execution of the company's strategy. Click here for our full research: (VIEW LINK)