Douglas - Stores are for free

All,CPlease find our unchanged analysis of Douglas here.

Looking at the eye watering valuations THG has IPOed with, it’s perhaps worth taking a look at any read-across for Douglas (“in the simplest terms and most convenient definitions”).

THG achieved Sales of £1.15bn and EBITDA of £111m last year (Douglas online: E580m and approx. E50m respectively). THG Sales had grown by 25% (LfL?) and Douglas online by 17.4% LfL. Both have been growing strongly in the pandemic.

THG has been trading at valuations from £5.4bn to £6.8bn, so ignoring the typical IPO bounce, let’s use the lower bound of the range. Thats:

Sales Multiple: 4.7x

EBITDA Multiple: 48x

Implied valuations for Douglas:

EV using Sales Multiple: E2.6bn

EV using EBITDA Multiple: E2.5bn

For comparison:

Douglas Total Net Debt: E2.1bn Book value (at par). 

I.e. the market is pricing the Brick&Mortar business at zero. Stats: 

Sales: E2.9bn

EBTIDA: E300m

Growth: Stable, if admittedly structurally challenged, even more so since Coronavirus, but prior to that and in connection with the online business - stable and certainly still EBITDA positive.

So purely from a valuation perspective (ignoring the E115m interest Douglas have to pay) (and ignoring a great many other things), the market is either wrong about The Hut Group or about Douglas. Its likely both and mostly wrong about The Hut Group, but that leaves it at least a little bit low on Douglas. 

Bonds have begun rising this week, but not by enough.

Wolfgang