SOHN Investment Conference: Regal’s Todd Guyot’s retail stock to watch

Regal’s Todd Guyot is watching one Aussie furniture retailer with expectations its share price could double in the next three years.

Regal Funds Management’s Todd Guyot. Picture: supplied.

Shares in ASX listed online furniture and homeware retailer Temple & Webster could double over the next three years as the online furniture market grows in Australia, according to Regal Funds Management’s small cap portfolio manager Todd Guyot.

Tipping the stock for the 2020 Sohn Hearts & Minds conference on Friday, Guyot said Temple & Webster had benefitted from the big shift to online shopping during COVID and the move by Australians to spend more money on homewares as they spent more time at home.

“There has been a cocooning effect as we want to be comfortable in our own homes,” he said.

“This has been assisted by spending which would otherwise have gone on overseas travel.”

“The world has changed,” he said.

“We are not going to go back to the way we behaved before.”

Mr Guyot said Temple & Webster, which was founded in 2011 and listed on the ASX in December 2015, was one of Australia’s fastest growing online homeware retailers, with a 74 per cent increase in revenues in the financial year to the end of June, boosted by strong sales as a result of the pandemic.

“COVID has supercharged Temple & Webster’s growth profile since March,” he said.

Its revenue was up by 90 per in the first six months of 2020, including a 140 per cent growth in the three months to the end of June when most of Australia was shut down as a result of the pandemic.

But Mr Guyot said the fact that the company had been able to sustain revenue growth of more than 100 per cent in July and August when Australia was opening up again showed the impact of customer satisfaction with the company which was resulting in repeat customers.

He said this had seen Temple & Webster’s earnings for the three months to the end of September coming in at a higher level than for the entire financial year to the end of June.

“It’s a trend that will continue,” he said.

The company sells more than 180,000 different items on the home ware market from over 700 suppliers with some 500,000 active customers.

Mr Guyot said COVID had accelerated the move to online shopping in Australia in the $14.6 billion homeware market, excluding appliances.

He said the penetration of online shopping in the market in Australia was only around six per cent – well below levels of around 17 per cent in the US and the UK- providing significant opportunity for growth in the local market.

“Australia is three to five years behind (in online shopping in the homeware market),” he said.

“When you look at what happened in real estate and car sales market in Australia, you can see the homeware category is perfectly suited for online disruption of traditional physical stores.”

Mr Guyot said Temple & Webster was a major player in a market which currently had a low level of brand awareness and a large number of different retailers.

He said the company was growing market share which meant it was able to offer better pricing terms with suppliers including exclusive access to some products.

It also benefitted as it did not need warehouse space with its suppliers delivering their products direct from their own warehouses to customers.

This meant the company was able to operate on a negative cash flow receiving money from customers before it had to pay suppliers, a trend which would boost its earnings as it continued to growth.

Mr Guyot said Temple & Webster was still a young company with plenty of growth ahead.

“There is the added attraction that it is still at a very early stage of its journey,” he said.

“It’s a stock we think can double over the next three years.”