Take Off S p A : ENVENT “Sales up, steady trade margin, retail network expansion fades profitability”

EQUITY RESEARCH - H1 2022 Update October 17th, 2022

OUTPERFORM

Current Share Price (€): 4.34

Target Price (€): 7.72

Take Off - Performance since IPO

150 140 130 120 110 100 90 80 70

25/11/21	25/02/22	25/05/22	25/08/22
	Take Off Share Price	FTSE Italia Growth Index

Source: S&P Capital IQ - Note: 25/11/2021 (IPO offer price)=100

Company data

ISIN number	IT0005467425
Bloomberg code	TKO IM
Reuters code	TKO.MI
Industry	Apparel retail
Stock market	Euronext Growth Milan
Share Price (€)	4.34
Date of Price	14/10/2022
Shares Outstanding (m)	15.6
Market Cap (€m)	67.8
Market Float (%)	28.5%
Daily Volume	10
Avg Daily Volume YTD	13,293
Target Price (€)	7.72
Upside (%)	78%
Recommendation	OUTPERFORM

Share price performance

	1M	3M	IPO
Take Off - Absolute (%)	0%	13%	9%
FTSE Italia Growth (%)	-7%	-4%	-21%
Range H/L (€) since IPO		5.50	3.32
YTD Change (€) / %		-0.005	-0.1%

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.

Sales up, steady trade margin, retail network expansion fades profitability

Stock performance: above market and peers

Take Off share price, at +9% since IPO, outperformed both the Italia Growth Index, which in the same period lost over 20%, and selected peers, with a combined performance at -16%.

Organic sales growth through network expansion, consistent trade margin, profitability keeps being at the top end of industry peers although lower

H1 2022 consolidated sales were €12.9m, +12% YoY, driven by Take Off sales at €10.2m, up by 19% on H1 2021, while Over had €2.7m sales, -7% on H1 2021. Trade margin was consistent with recent level, close to 60% of sales. Higher retail and marketing costs related to openings (23), personnel and overheads resulted in EBITDA at €3.3m, -17% YoY, 25% on sales vs 34% in H1 2021. EBIT was €2.2m and net income €1.4m. Net cash decreased from €12.1m at FY21 year-end to €7.7m as of June 2022, mainly due to €2.6m working capital outflow and €2.8m dividend distribution.

As of June 2022, after 23 openings and 3 closedowns of underperforming stores during H1, Take Off had 163 stores, from 143 as of 2021 year-end, of which: Take Off 43 stores, from 31 at 2021 year-end, Overkids 120 stores, from 112 at 2021 year-end.

Outlook and estimates revision

Store openings continue apace: after June there were 16 more openings (7 Take Off and 9 Overkids). In addition, Take Off outlet sales up by 19% confirm the resilience of the off- price model. Despite the retail network expansion is running as promised to increase the geographical coverage across the country and is overall consistent with our targets, on the back of H1 results and considering an increasing pressure on consumer discretionary income, we shift through the following years a portion of our 2022 estimates. We also factor in the higher retail and marketing cost, resulting in a revised profitability.

Target Price €7.72 per share (from €8.03), OUTPERFORM rating confirmed

Our updated valuation, factoring in H1 performance and current net cash position, together with a rising Italian market risk, yields a target price of €7.72 per share, from €8.03 of our previous note, corresponding to 17x 2022 EV/EBITDA, while Take Off currently trades at 9x. Given the 78% upside potential on current share price, we confirm the OUTPERFORM rating on the stock.

KEY FINANCIALS AND ESTIMATES
€m	2019	2020	2021	2022E	2023E	2024E
Revenues	33.1	22.3	28.0	30.4	47.3	56.4
YoY %	-	-32.6%	25.3%	8.4%	55.8%	19.2%
EBITDA	6.2	6.5	9.5	8.2	13.5	17.1
Margin on Sales	19.3%	30.7%	36.1%	28.1%	29.3%	30.9%
EBIT	4.6	5.0	7.7	6.1	10.5	13.3
Margin on Sales	14.4%	23.7%	29.1%	20.9%	22.6%	24.1%
Net Income	3.5	3.8	5.6	3.9	7.0	9.1
Net (Debt) Cash	4.7	0.1	12.1	10.9	18.2	25.3
Equity	12.8	11.8	23.7	24.7	34.6	43.7

Source: Company data 2019-21A, EnVent Research 2022-24E

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.

Market update

Trading price range €3.32-5.50 per share

+9% for Take Off since IPO, in the same period the Italia Growth Index lost -21%

Take Off - Share price performance and trading volumes since IPO

150			1,600,000
140	TKO IPO offer	TKO ending	1,400,000
price €4.34
130	price €4.00	1,200,000
120	+9%		1,000,000
110			800,000
100			600,000
90			400,000
80			200,000
70			0

25/11/21	25/01/22	25/03/22	25/05/22	25/07/22	25/09/22
	Take Off Volumes	Take Off Share Price	FTSE Italia Growth Index

Source: EnVent Research on S&P Capital IQ - Note: 25/11/2021 (IPO offer price)=100

Take Off above industry peers (+9% vs -16%)

Industry peers - Market performance since Take Off IPO

140
120
100
80
60
40
20
0
Nov-21Dec-21	Jan-22	Feb-22Mar-22	Apr-22May-22	Jun-22	Jul-22	Aug-22	Sep-22
		Take Off	Mean of industry peers

Source: EnVent Research on S&P Capital IQ - Note: 25/11/2021 (IPO offer price)=100

Industry peers - Regression analysis and Take Off target positioning

4.0x

Take Off TARGET

3.5x

Fast Retailing

PRICE

3.0x

(Uniqlo)

EV/Revenues

2.5x

TJX

Inditex

Take Off CURRENT

1.5x

2.0x

Burlington Stores

Ross Stores

MARKET PRICE

2022E

1.0x

OVS

H&M

y = 17.59x + 0.1746

0.5x

Gap

R² = 0.5827

0.0x

5%

7%

9%

11%

13%

15%

17%

19%

21%

23%

25%

Avg. 5Y EBIT margin

Source: EnVent Research on S&P Capital IQ, October 2022

1

Investment case

The Italian fashion outlet

Geographically focused

Differentiated business model

Strategy

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 126 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 opportunities 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.

Historical Sales and EBITDA

40	31%	36%	40%
30			30%
19%
20			20%
10			10%
32.1	21.2	26.4
0			0%
2019	2020	2021
Sales (€m)		EBITDA Margin %

Source: Company data

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

2

Sales breakdown, 2021

25%

						75%
					Take Off	Over
Source: Company data
40
Historical aggregated revenues
35								33.2
30							30.1
					26.9		10.2		26.4
					24.2
25						10.3		22.3
							6.5
				20.0		9.6
20
				9.1				6.8
15				7.9
10			8.8				19.8	23		19.9
				17.3
						15.5
		4.6			15.1
			12.1
5
		8.8
	0.6	4.6
0
Euro m	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021
					Take Off	Over

Source: Company data - Note: In 2021 sales

Retail network expansion update

Warrants

Sustainability report

Business update and corporate period facts

• In H1 2022 there were 23 store openings and 3 closures, bringing Take Off total stores to 163. Breakdown: Take Off 43 stores, Overkids 120 stores. After June, there were 16 more openings, 7 for Take Off and 9 for Overkids, and 4 closedowns, bringing Take Off total stores to 175 (September 2022). Most openings were in Lombardy, Emilia-Romagna, Veneto, Latium, Apulia, Calabria, Sicily, Umbria, Campania and Friuli. Overall, the retail network is composed of 42 own stores and 133 franchised stores.
• Take Off Warrant 2022-24 (IT0005467474) may be exercised during the first exercise period between November 14-25, 2022, at a strike price of €5.20, with a conversion ratio of 1 share:4 warrants
• Last May, Take Off released its first sustainability report

3

H1 2022 results

Consolidated Profit and Loss

€m	H1 2021	H1 2022
Sales	11.5	12.9
Other income	0.4	0.6
Total Revenues	11.9	13.5
YoY %	21.9%	13.0%
Cost of sales	(5.2)	(5.8)
Trade margin	6.7	7.6
Margin on Sales	58.2%	59.1%
Personnel	(2.0)	(2.6)
Retail cost	(0.5)	(1.3)
Store margin	4.2	3.8
Margin on Sales	36.7%	29.3%
Services	(0.2)	(0.4)
Other operating costs	(0.1)	(0.1)
SG&A	(0.3)	(0.5)
EBITDA	4.0	3.3
Margin on Sales	34.2%	25.4%
Retail leases	(0.8)	(0.8)
EBITDA Adj.	3.2	2.5
Margin on Sales	27.6%	19.1%
D&A	(0.1)	(0.2)
EBIT	3.0	2.2
Margin on Sales	25.5%	16.5%
Interest	(0.2)	(0.4)
EBT	2.8	1.9
Margin	23.5%	13.8%
Income taxes	(0.7)	(0.4)
Net Income (Loss)	2.1	1.4
Margin	17.8%	10.6%
Consolidated Cash Flow
€m	H1 2021	H1 2022
EBIT	3.0	2.2
Current taxes	(0.7)	(0.4)
D&A	0.1	0.2
Provisions	0.1	(0.0)
Cash flow from P&L operations	2.6	2.0
Trade Working Capital	(0.4)	(1.3)
Other assets and liabilities	1.7	(1.3)
Capex / disposal	0.4	(0.2)
Retail leases - Right of use	0.7	(0.5)
Operating cash flow after WC and capex	4.9	(1.3)
Interest	(0.2)	(0.4)
Dividends	(4.5)	(2.8)
Net cash flow	0.2	(4.4)
Net (Debt) Cash - Beginning	0.1	12.1
Net (Debt) Cash - End	0.4	7.7
Change in Net (Debt) Cash	0.2	(4.4)

Source: Company data - Note: H1 KPIs calculated on LTM economics

Consolidated Balance Sheet

€m	H1 2021	2021	H1 2022
Inventory	10.6	8.7	10.8
Trade receivables	0.1	0.2	0.1
Trade payables	(4.1)	(3.7)	(4.3)
Trade Working Capital	6.6	5.3	6.6
Other assets (liabilities)	(5.2)	(0.8)	0.5
Net Working Capital	1.4	4.5	7.1
Intangible assets	0.1	0.0	0.0
Retail leases - Right of use	7.1	6.6	7.1
Property, plant and equipment	1.3	1.4	1.4
Non-current assets	8.6	8.0	8.5
Provisions	(0.8)	(1.0)	(1.0)
Net Invested Capital	9.1	11.5	14.7
Bank debt	6.7	6.2	6.0
Other financial debt	7.4	6.9	7.5
Non-current trade and other payables	0.0	1.2	1.0
Cash and equivalents	(14.5)	(26.5)	(22.2)
Net Debt (Cash)	(0.4)	(12.1)	(7.7)
Equity	9.5	23.7	22.3
Sources	9.1	11.5	14.7

Ratio analysis

	H1 2021	H1 2022
ROE	56%	22%
ROS	26%	17%
ROIC	33%	15%
DSO	1	2
DPO	102	84
DOI	166	151
TWC/Sales	27%	24%
NWC/Sales	6%	26%
Net Debt/EBITDA	cash	cash
Net Debt/Equity	cash	cash
Net Debt/(Net Debt+Equity)	cash	cash
Cash flow from P&L operations/EBITDA	66%	62%
FCF/EBITDA	125%	neg

4