Take Off S p A : ENVENT “Continuing growth driven by resilience of off-price sales”

EQUITY RESEARCH - FY22 Update April 18th, 2023

OUTPERFORM

Current Share Price (€): 3.08

Target Price (€): 6.41

Continuing growth driven by resilience of off-price sales

Stock performance: holding the line until February, then gradual fall

Despite some volatility, especially between May and July 2022, Take Off share price held the line over last year until February 2023, trading in the range €3.55-€5.26. Then the stock started a downward trend. Overall, Take Off share price lost 33% over LTM, below the Italia Growth Index, which in the same period lost 10%.

Take Off - 1Y Performance

130

110

90

70

50

19/04/22	19/07/22	19/10/22	19/01/23
	Take Off Share Price	FTSE Italia Growth Index

Source: S&P Capital IQ - Note: 19/04/2022=100

Company data

ISIN number	IT0005467425
Bloomberg code	TKF IM
Reuters code	TKF.MI
Industry	Apparel retail
Stock market	Euronext Growth Milan
Share Price (€)	3.08
Date of Price	17/04/2023
Shares Outstanding (m)	15.6
Market Cap (€m)	48.1
Market Float (%)	39.1%
Daily Volume	3,520
Avg Daily Volume YTD	7,153
Target Price (€)	6.41
Upside (%)	108%
Recommendation	OUTPERFORM

Share price performance

	1M	3M	6M	1Y
Take Off - Absolute (%)	-2%	-28%	-30%	-33%
FTSE Italia Growth (%)	2%	-2%	5%	-10%
1Y Range H/L (€)			5.50	3.08
YTD Change (€) / %			-1.26	-29%

Source: S&P Capital IQ

Analysts

Franco Gaudenti - Head of Research [e-mail] Luigi Tardella - Co-Head of Research [e-mail]

EnVent Capital Markets Limited

42, Berkeley Square - London W1J 5AW (UK) Phone [phone]

This Note is issued by arrangement with MIT SIM, Issuer's Specialist

This document may not be distributed in the United States, Canada, Japan or Australia or to U.S. persons.

Top-line growth in FY22 untouched by economic slowdown, profitability under pressure

FY22 sales, in line with our estimate, grew by 13% YoY to €29.8m, driven by Take Off store expansion with sales at €23.7m, +19% YoY, while Over sales went down by 6% to €6.1m. As commented in our prior note, in 2022 there were 18 Take Off and 2 Overkids net openings. Take Off sales per store have been roughly €500k, as in 2020, vs over €600k in 2021 and over €700k before 2019. Average price per item, according to management, in FY22 rose to €27 from €24 in FY21 for Take Off and from €7 to €8 for Over. Trade margin decreased due to merchandise cost back at almost 60% of sales (vs 37% in FY21). Higher retail, marketing and personnel costs for new openings resulted in EBITDA at €7.3m, -24% YoY, 24% on sales vs 36% in FY21. Net income was €3.5m (-38% YoY). Net cash decreased at €7m as of year-end 2022, from €12.1m at FY21 year-end, mainly for €8.2m working capital and capex outflows and €2.8m FY21 dividend distribution. A dividend of €0.06 per share was proposed on FY22 profits, corresponding to 27% payout.

Outlook: off-price resisting hard times

Take Off outlet sales up by 19% confirm resiliency of demand for value-for-money goods: the off-price is a defensive market segment, despite the challenging economic conditions with pressure on consumer discretionary disposable income after raising inflation and interest rates. While some consumers may be willing to postpone or cut discretionary purchases, others will seek out bargains. According to McKinsey, the off-price is expected to account for 12% of fashion industry revenues by 2025, from 11% in 2021.

Estimates revision

Having analyzed full year results and some operating indicators, we restate our projections of store openings and overall assumptions on sales per store, resulting in a 20-30% decrease of sales in 2023-24E. We also factor in the higher operating costs.

Target Price €6.41 per share (from €7.72), OUTPERFORM rating confirmed

Our updated estimates and valuation outcome is a target price of €6.41 per share, from €7.72 of our previous note, corresponding to 12x 2023 EV/EBITDA, while Take Off currently trades at 5x. Given the substantial over 100% upside potential on current share price, we confirm the OUTPERFORM rating on the stock.

KEY FINANCIALS AND ESTIMATES
€m	2019	2020	2021	2022	2023E	2024E	2025E
Sales	32.1	21.2	26.4	29.8	35.9	37.1	40.4
YoY %	-	-34%	25%	13%	20%	3%	9%
EBITDA	6.2	6.5	9.5	7.3	9.8	10.1	11.0
Margin on Sales	19%	31%	36%	24%	27%	27%	27%
EBIT	4.6	5.0	7.7	5.0	7.3	6.9	7.2
Margin on Sales	14%	24%	29%	17%	20%	19%	18%
Net Income	3.5	3.8	5.6	3.5	4.9	4.7	4.9
Net (Debt) Cash	4.7	0.1	12.1	7.0	9.2	12.9	17.9
Equity	12.8	11.8	23.7	24.4	28.4	33.1	38.0

Source: Company data 2019-22A, EnVent Research 2023-25E

The Issuer is a corporate client of EnVent Capital Markets Ltd., thus this Note is to be intended as a marketing communication, not an independent research. See final two pages for important disclosures.

Trading price range €3.08-5.50 per share

-33% for Take Off vs -10% of the Italia Growth Index

Market update

Take Off - 1Y Share price performance and trading volumes

130						1,600,000
	TKF beginning				1,400,000
	price €4.63
			TKF ending
110					1,200,000
				price €3.08
						1,000,000
90						800,000
						600,000
70				-33%		400,000
						200,000
50						0
19/04/22	19/06/22	19/08/22	19/10/22	19/12/22	19/02/23
	Take Off Volumes	Take Off Share Price	FTSE Italia Growth Index

Source: EnVent Research on S&P Capital IQ - Note: 19/04/2022=100

Industry comparison

Industry peers - 1Y Market performance

140
120
100
80
60
40
Apr-22	Jun-22	Aug-22	Oct-22	Dec-22	Feb-23
		Take Off	Mean of industry peers

Source: EnVent Research on S&P Capital IQ - Note: 19/04/2022=100

Take Off - Liquidity analysis and velocity turnover

18%

18% turnover velocity in 2022, with ca. 11,000 average number of shares traded daily

2022

Source: EnVent Research on S&P Capital IQ - Note: Velocity turnover on total shares: ratio of total traded shares to total ordinary shares in a given period

1

Fair correlation within the group

Industry peers - Regression analysis and Take Off target positioning

	4.0x			Fast Retailing
	3.5x
EV/Revenues			(Uniqlo)
2.0x
			Take Off TARGET
	3.0x			Inditex
			PRICE
	2.5x
		Burlington Stores	TJX	Ross Stores
2023E
1.5x	H&M			Take Off CURRENT
			MARKET PRICE
		OVS
	1.0x
	0.5x				y = 20.575x + 0.2129
	Gap			R² = 0.7316
	0.0x
	0%	5%	10%	15%	20%	25%
			Avg. 5Y EBIT margin

Source: EnVent Research on S&P Capital IQ, April 2023

The Italian fashion outlet

Geographically focused

Differentiated business model

Strategy

Investment case

Take Off, listed on Euronext Growth Milan since November 2021, is an Italian fashion value-for-money retailer which operates through a chain of 49 stores selling women and men apparel and 114 stores selling childrenswear. Central-Southern Italy is presently the core geolocation scope and organic growth over the medium- term will be supported also by increasing territorial coverage.

The Group operates with a joint business model, being an off-price retailer of products from designer brands and a typical vertically integrated apparel retailer with an internal team in charge of development of own brands and merchandise mix through external suppliers, with in-house logistics management.

Take Off intends to pursue its store portfolio development in current market areas and unexplored geographies, especially Northern Italy regions, also through acquisition of small retail fashion networks. Overall mid-term targets could be doubling Take Off and Overkids stores. A mid-termstep-up goal is accessing foreign markets, such as France, Germany and Switzerland.

40

31%

30

19%

20

10

32.121.2

0

2019	2020
		Sales (€m)

Source: Company data

36%

24%

26.429.8

2021	2022
EBITDA Margin %

40%

30%

20%

10%

0%

2

Industry and Company drivers

• Fashion goods is a market driven by both need and impulse
• Resilient demand for value and quality goods: a countercyclical and defensive market segment
• Making the most of apparel inventory, a burden typical of manufacturers and other retailers
• Diversified and balanced brand portfolio
• Selling proposition to serve a wide category of customers
• Growth without huge capex
• Opportunistic merchandise acquisition
• Customers' preferences analytics
• Efficient franchising network

Challenges

• Brand awareness and reputation buildup
• Market competitiveness and price pressure within the industry
• Geographic presence
• Rise of e-tailers offering branded products at discount
• Inventory requirement

Sales breakdown, 2022

Over 20%

Take Off 80%

Source: Company data

Historical aggregated revenues

40

35						33.2
30						30.1		29.8
				26.9	10.2		26.4
25				24.2		10.3	22.3	6.1
					6.5
				20.0	9.6
20
			9.1			6.8
15				7.9
			8.8		23		23.7
10
				19.8		19.9
	4.6	15.1	17.3	15.5
		12.1

5

8.8

0.6 4.6

0
Euro m 2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022
							Take Off	Over

Source: Company data

3

	Business update and corporate period facts
	• In 2022 there were 20 Take Off and 27 Overkids new stores, together with 27
Retail network expansion	store closures (25 for Overkids and 2 for Take Off). This resulted in 20 net
	openings. As of December 2022, Take Off had 163 stores, of which: Take Off 49
	stores, from 31 at 2021 year-end, Overkids 114 stores, from 112. Overall, the
	retail network is composed of 42 own stores and 121 franchised stores.
Warrants	• During the first exercise period between November 14-25, 2022 (strike price of
	€5.20) no warrant has been exercised being out of the money
Increasing market float to 39%	• Take Off main shareholder Summit SpA, owned by Mr. Piccarreta, sold a stake
	of ca 11% in Take Off to some institutional investors in February
	• Institutional investors AcomeA and Algebris Investments have recently
	increased their stakes, respectively, to 9.30% and 5.20%
	Industry outlook: fashion industry again facing uncertainties,
	consumers turning to value and discount brands

Economic slowdown

Persisting polarization: luxury and value-for-money performing well, while segments in the middle struggle

Off-price resilient in face of uncertainty

After 18 months of growth, starting with rebound in 2021 through mid-2022, the fashion industry is again facing a challenging climate: coming back of inflation and depressed customer sentiments have resulted in a slowdown in H2 2022 (-9% to - 7% in Europe).

Looking forward, according to McKinsey, while the luxury sector is expected to outperform the rest of the industry as wealthy shoppers are insulated from the impact of the economic slowdown, the fashion market may struggle to deliver growth in 2023. McKinsey analysis projects slow sales growth for fashion between -2% and +3%, weighed down by a more marked slowdown in Europe between -1 and -4%. In this framework, off-price retailers may benefit by picking up low-cost inventory from under-pressure traditional fashion retailers.

This global economic gloom is reflected in consumers' disposable income and thus in shopping habits: the different habits of low and high-income consumers will become more pronounced, as value-conscious customers are likely to postpone or curtail discretionary purchases, or to switch to alternative channels as value retailers, off-price, rental or resale.

The off-price channel is expected to account for 12% of fashion industry revenues by 2025, from 11% in 2021.

Sources:

BoF and McKinsey, The state of fashion 2023, November 2022

McKinsey, Mastering off-price fashion in an omnichannel world, March 2022

4