Take Off S p A : KT&PARTNERS “Achieving a Capillary Network of 175 Stores”

Take Off S.p.A.	Apparel

Achieving a Capillary Network of 175 Stores

ADD | Fair Value: €7.28 (€8.37) | Current Price: €4.40 | Upside: +65.5%

€ Million	FY19A	FY20A	FY21A	FY22E	FY23E	FY24E	FY25E
Total Revenues	33.2	22.3	28.0	30.7	41.0	50.0	58.1
EBITDA	6.2	6.5	9.5	8.4	12.1	15.0	17.9
margin	18.7%	29.1%	34.0%	27.3%	29.5%	30.1%	30.8%
Net Profit	3.5	3.8	5.6	3.8	5.8	7.5	9.2
margin	10.7%	17.1%	20.1%	12.4%	14.1%	15.0%	15.8%
EPS	n.a.	n.a.	0.36	0.26	0.37	0.48	0.59
NFP	(4.7)	(0.1)	(12.1)	(5.2)	(8.2)	(13.6)	(20.8)

Source: Company data (2019-21), KT&Partners' elaboration (2022-25)

Double-digit sales growth confirmed by 1H22 financial results. Take Off S.p.A. (TKO-IT)shown 1H22 sales revenues at €12.9mn, growing by 11.9% YoY. The Group's sales were 12.7% below our estimates mainly due to the lower contribution of new stores, because of a longer than expected set-uptime (an average of 4 months between the signing of the agreement and the opening), and with their effective contribution starting in 2H22. 1H22 Total revenues grew by 13% YoY, reaching €13.5mn, with Take Off sales revenues up by 18.2% YoY, while Over reported revenues were below 1H21 (-6.9%YoY). Regarding the retail network development, during 1H22 the Company was able to sign agreements for 23 new stores, of which 12 are related to Take Off. Profitability was negatively impacted by higher-than-expectedincidence of cost of services and personnel expenses (+5.4pp YoY and +3.6pp YoY, respectively), also as result of new openings and rising inflation leading to an EBITDA margin of 24.3% (-8.9ppYoY and -4ppvs our estimates). Therefore, 1H22 EBITDA decreased to €3.3mn (-17.2%YoY from €3.8mn) and ended up 24.1% below our estimates. Looking at the bottom line, the Group showed a decrease in 1H22A net margin of 7.2pp YoY resulting in a net income of €1.4mn (-32.8%YoY). NFP worsened by €4.4mn, amounting to a net cash position of €7.7mn in 1H22 from €12.1mn of net cash in FY21A.

Business development update. According to TKO-IT, since the beginning of 2022, the group signed 40 agreements for new stores and closed 8 non-performing stores, reaching a capillary network of 175 stores, of which ca. 30 are to be effectively opened in the coming months. Take Off's signed agreements for 20 new stores (17 DOS and 3 TPOS) and closed two DOS. On the other hand, Over signed agreements for 20 new TPOS stores and decided to close 6. More specifically, 14 of the 20 new Take Off stores are based in Northern Italy, in line with the sales network expansion plan announced in the IPO. We note that only 11 out of 40 new stores are already operating, while the remaining will be opened by 4Q22.

Estimates revision. Following 1H22 financial results, we have revised downward our 2022-24 estimates factoring in: i) longer set-up time required for each new store, which also led to a weaker-than-expected sales revenues in 1H22; and ii) the higher-than- expected cost of services and people expenses occurred in 1H22. As a result, we now anticipate FY22E total revenues at €30.7mn (vs €35mn), growing to €50mn (vs €54mn) in FY24E. Given the lower-than-expected profitability, we prudently revised downward our 2022-24 EBITDA margin projection. Indeed, although we are expecting that in FY22E EBITDA margin will partially recover (reaching 27.3%, 2.6pp below our previous estimates) thanks to a better revenue mix in 2H22, we prudently reduce EBITDA margin estimates for the entire forecast period reaching 30.1% in FY24E. We maintain our expectation that the Company will remain cash positive throughout the forecast period, maintaining the opportunity to expand through M&A (which however is not included in our estimates).

Valuation update. Our valuation - based on DCF and market multiples returns an average equity value of €113.7mn or €7.28ps, implying a potential upside of 65.5% on the current market price.

Relative Performance Chart since YTD

30	Volume	Take Off SpA	FTSE Italia Grow th
20
10
0					1.27
-10					2,000,000
-20
				-22.46 1,000,000
-30					0
	Jan-22	Mar-22	May-22	Jul -22	Sep -22

Research Update

October 20, 2022 - 7.00 h

Equity Research Team

[e-mail]

Mauro IACCINO [e-mail][phone]

Gabriele TRAPANI [e-mail][phone]

	Market Data
Main Shareholders
Summit S.p.A.	64.15%
Aldo Piccarreta	5.53%
Giorgia Lamberti Zanardi	1.84%
Mkt Cap (€ mn)	68.7
EV (€ mn)	56.6
Shares out.	15.6
Free Float	28.5%

Market multiples	2021A	2022E	2023E
EV/EBITDA
Take Off SpA	5.9x	6.8x	4.7x
Comps Median	12.0x	12.6x	11.4x
Take Off SpA vs Median	-50%	-46%	-59%
P/E
Take Off SpA	12.2x	18.1x	11.9x
Comps Median	17.4x	21.1x	18.2x
Take Off SpA vs Median	-30%	-14%	-35%

	Stock Data
52 Wk High (€)	5.64
52 Wk Low (€)	3.19
Avg. Daily Trading 90d	2,353
Price Change 1w (%)	0.00
Price Change 1m (%)	1.38
Price Change YTD (%)	1.15

Via della Posta, 10 - Piazza Affari, 20123 Milan- Italy Tel: [phone] Fax: [phone] [e-mail]

Take Off S.p.A.

Price: €4.40| Fair Value: €7.28

Key Figures - Take Off S.p.A.

Current price (€)	Fair Value (€)			Sector			Free Float (%)
4.40	7.28			Apparel			28.5%
Per Share Data	2019A	2020A	2021A	2022E	2023E	2024E	2025E
Total shares outstanding (mn)	n.m.	n.m.	15.62	15.62	15.62	15.62	15.62
EPS	n.m.	n.m.	0.36	0.26	0.37	0.48	0.59
Dividend per share (ord)	n.a.	n.m.	0.18	0.06	0.09	0.12	0.15
Dividend pay out ratio (%)	28%	178%	49%	25%	25%	25%	25%
Profit and Loss (EUR million)	2019A	2020A	2021A	2022E	2023E	2024E	2025E
Total Revenues	33.2	22.3	28.0	30.7	41.0	50.0	58.1
EBITDA	6.2	6.5	9.5	8.4	12.1	15.0	17.9
EBIT	4.6	5.0	7.7	5.4	8.5	10.9	13.2
EBT	5.1	5.0	7.2	5.4	8.1	10.5	13.0
Taxes	(1.5)	(1.2)	(1.6)	(1.6)	(2.4)	(3.1)	(3.8)
Tax rate	30%	23%	22%	30%	29%	29%	29%
Net Income	3.5	3.8	5.6	3.8	5.8	7.5	9.2
Balance Sheet (EUR million)	2019A	2020A	2021A	2022E	2023E	2024E	2025E
Total fixed assets	9.9	10.2	8.5	16.1	17.8	18.2	17.6
Net Working Capital (NWC)	(1.3)	2.2	4.0	4.7	5.6	6.4	8.0
Provisions	(0.5)	(0.7)	(1.0)	(1.4)	(1.9)	(2.5)	(3.3)
Total Net capital employed	8.1	11.7	11.5	19.5	21.5	22.1	22.3
Net financial position/(Cash)	(4.7)	(0.1)	(12.1)	(5.2)	(8.2)	(13.6)	(20.8)
Total Shareholder's Equity	12.8	11.8	23.7	24.7	29.7	35.7	43.1
Cash Flow (EUR million)	2019A	2020A	2021A	2022E	2023E	2024E	2025E
Net operating cash flow	n.a.	5.3	8.0	6.8	9.6	11.9	14.1
Change in NWC	n.a.	(3.5)	(1.9)	(0.7)	(0.9)	(0.8)	(1.6)
Capital expenditure	n.a.	(0.7)	(1.3)	(1.8)	(1.5)	(1.5)	(1.5)
Other cash items/Uses of funds	n.a.	0.2	0.3	0.4	0.5	0.6	0.7
Free cash flow	n.a.	1.3	5.1	4.7	7.7	10.2	11.8
Enterprise Value (EUR million)	2019A	2020A	2021A	2022E	2023E	2024E	2025E
Market Cap	n.m.	n.m.	68.0	68.7	68.7	68.7	68.7
Minorities	-	-	-	-	-	-	-
Net financial position/(Cash)	(4.7)	(0.1)	(12.1)	(5.2)	(8.2)	(13.6)	(20.8)
Enterprise value	n.m.	n.m.	55.8	63.5	60.6	55.2	48.0
Ratios (%)	2019A	2020A	2021A	2022E	2023E	2024E	2025E
EBITDA margin	18.7%	29.1%	34.0%	27.3%	29.5%	30.1%	30.8%
EBIT margin	13.9%	22.5%	27.5%	17.7%	20.7%	21.7%	22.7%
Gearing - Debt/equity	-36.8%	-1.2%	-51.3%	-21.2%	-27.5%	-38.0%	-48.2%
Interest cover on EBIT	-9.7%	0.8%	6.4%	8.8%	3.9%	2.9%	2.0%
NFP/EBITDA	-75.9%	-2.2%	-127.4%	-62.5%	-67.6%	-90.3%	-116.0%
ROCE	57.0%	43.0%	66.7%	27.9%	39.3%	49.0%	59.3%
ROE	27.6%	32.2%	23.8%	15.4%	19.5%	21.0%	21.4%
EV/Sales	1.71x	2.53x	2.02x	1.85x	1.38x	1.13x	0.97x
EV/EBITDA	9.10x	8.72x	5.95x	6.77x	4.69x	3.77x	3.16x
P/E	19.42x	18.02x	12.19x	18.12x	11.90x	9.18x	7.47x
Free cash flow yield	n.m.	2.3%	9.1%	8.4%	13.6%	18.1%	20.8%
Growth Rates (%)	2019A	2020A	2021A	2022E	2023E	2024E	2025E
Sales	n.a.	-32.7%	25.3%	9.5%	33.6%	22.0%	16.3%
EBITDA	n.a.	4.4%	46.5%	-12.2%	44.4%	24.6%	19.1%
EBIT	n.a.	8.8%	52.9%	-29.5%	56.2%	28.3%	21.8%
Net Income	n.a.	7.8%	47.8%	-32.7%	52.3%	29.6%	22.8%

Source: Company data, KT&Partners' elaboration

October 20, 2022 ● 2

Take Off S.p.A.

Price: €4.40| Fair Value: €7.28

Key Charts

Total Revenues and Opening Shop (€mn, #)

Profitability Evolution (€mn, %)

Source: Company data, KT&Partners' elaborationSource: Company data, KT&Partners' elaboration

Take Off Total Revenues and Opening Shop (€mn, #)

Over Total Revenues and Opening Shop (€mn, #)

Source: Company data, KT&Partners' elaborationSource: Company data, KT&Partners' elaboration

Trade Working Capital (€mn, %)

NFP and Change in Total Shareholders' Equity (€mn, x)

Source: Company data, KT&Partners' elaboration

Source: Company data, KT&Partners' elaboration

October 20, 2022 ● 3

Take Off S.p.A.

Price: €4.40| Fair Value: €7.28

Overview

Company description

The Group is active in the Italian retail fashion market - through a network of 175 stores - offering families a complete product portfolio from adult off-price apparel - through its brand Take Off - to childrenswear - through its proprietary brand Over Kids. As for Take Off, the Group has developed an innovative business model based on: i) a balanced mix of proprietary and third-party brands; ii) a network of 49 fashion outlet boutiques (of which 42 are directly operated) and stock reshuffling among stores to reduce unsold products to almost zero; and

1. an innovative discount pricing system based on the "divided by" paradigm (from ÷2 to ÷10). Over's network covers most of the Italian territory through 126 affiliated stores, offering full-price products. The Group is now planning to expand its retail network both by entering new Italian regions and by increasing penetration in already covered markets.

TKO-IT was listed on Euronext Growth Milan (EGM) on November 23, 2021, with an IPO market capitalization of €67.7mn and ca. €11.2mn of capital raised (adjusted for IPO's costs).

The management announced that IPO proceeds would be employed to speed up the retail network development by opening ca. 40 Take Off stores in 2024 - ca. 70% as DOS - and ca.

90 Over's TPOS. Take Off is also considering accelerating its development by acquiring already existing small non-performing retail networks and converting them into Take Off stores. The network development is expected to boost the Group's revenues, profitability, and awareness.

Investment case

• Take Off's innovative business model based on fashion outlet boutiques. Take Off has developed an innovative business model, introducing fashion outlet boutiques, offering a high-levelcustomer experience within refined stores with personal sales assistance and an innovative discount pricing system, capturing a wide customer base.
• An extended and capillary retail network with high profitability and low risk. The Group leverages on one of the largest retail networks, operating through 175 stores, covering most of the Italian regions through Over's network and with a capillary presence in the center-southernregions through Take Off's network. Furthermore, the Group - according to the management - bears low financial risk associated with network development as: i) investments needed to open new Take Off stores are limited to €300k of inventory (lower for Over) and €150k of set-upcosts (and ca. €5-20kfor TPOS); ii) costs for the eventual closure of non-performingstores are limited to ca. €100k for DOS - including both non-recoverable set-upinvestments and closure costs - and basically zero for TPOS.
• High profitability granted by stock rotations through the network. Take Off's model is a clear example of circular economy, as the retail network allows efficient stock management. Indeed, unsold products from each season (11% on average) are reshuffled to other stores to maximize profits and mean inventory destruction or depreciation is near to zero. As a result, the Company reported FY21 EBITDA margin of 36.1% (calculated on sales revenues), i.e., a FY21 EBITDA of €9.5mn (+46.5% YoY).
• Positioned in strongly resilient markets. The Group operates in two segments - the off- price fashion market for adults and the childrenswear market - which have proved to be

strongly resilient during market downturns.

Recent developments

• Warrant Take Off 2022-24. the Group will assign warrants with a ratio of 1 warrant for each share (for a total of 15,620,000 warrants) to each shareholder at FY21 Financial
  Statement approval by the shareholders' meeting. The warrant could be converted into new shares (exercise period in November of each year between 2022-24) with a ratio of four warrants per share at a strike price of: i) +30% on IPO price in the first window; ii) in the second window at a strike price of +15% with respect to first window strike price; and iii) in the third window at a strike price of +15% on the second window strike price.

October 20, 2022 ● 4

Take Off S.p.A.

Price: €4.40| Fair Value: €7.28

1H22 Financial Results

The Group's sales revenues increased by 11.9% YoY to €12.9mn (vs €11.5mn in 1H21A), even though 12.7% below our previous estimates due to: i) lower contribution from new stores, whose set-up time was longer than expected (an average of 4 months between the signing of the agreement and the opening of the store), expecting that they will start to generate revenues only by 2H22; and ii) several adverse macroeconomic events mainly related to rising inflation that have not encouraged customers' consumption. Take Off sales revenues grew by 18.2% YoY, leading group growth, while Over reported revenues below 1H21 (-6.9% YoY). Total revenues grew by 13% YoY, reaching €13.5mn in 1H22.

Regarding the retail network evolution, during 1H22 the Company was able to sign agreements for 23 new stores, of which 12 are related to Take Off and 13 belong to Over. Furthermore, according to TKO-IT's announcement, during 1H22 there have also been 4 store closures. It is worth noting that only 11 out of 23 new stores were already operating in 1H22, while the remaining will be opened by 4Q22.

Despite global supply chain disruptions and high inflation, the Group was able to achieve a stable gross margin of 56.6% (vs 52.1% estimated). However, the Group's profitability was negatively impacted by higher-than-expected incidence of cost of services (e.g. logistics, marketing and people training expenses) and personnel expenses (+5.4pp YoY and +3.6pp YoY, respectively) also as result of new openings and rising inflation, leading to an EBITDA margin of 24.3% (-8.9pp YoY and -4pp vs our estimates). Therefore, in absolute terms, 1H22 EBITDA decreased by 17.2% YoY to €3.3mn (from €3.8mn in 1H21), ending 24.1% below our estimates.

Looking at the bottom line, the Group showed a decrease in 1H22A net margin of 7.2pp YoY resulting in a net income of €1.4mn (-32.8% YoY) and 35.9% below our estimates also due to unexpected financial expenses related to new leasing contracts and foreign exchange loss from Over.

During the first semester of 2022, fixed assets increased by ca. €0.6mn as a result of new leasing signed for new openings, amounting to €9.1mn in 1H22A. Looking at the trade working capital, its incidence on revenue went from 14.5% in 2021 to 20.7% in 1H22, mainly due to an increase in inventories - for the upcoming 2022-23 winter season - and an increase in advance supplier receivables, driving Net Working Capital (NWC) to €5.6mn in the first half of 2022 from €4.1mn in FY21A.

Over the same period, the NFP worsened by €4.4mn, amounting to a net cash position of €7.7mn in 1H22 from €12.1mn of net cash in FY21A. The change in NFP was mainly due to: i) €2.8mn of dividends payments); ii) ca. €3.5mn NWC cash absorption caused by increasing inventories and other assets; and iii) €1.3mn attributable to new leasing contracts (ROU IFRS 16).

October 20, 2022 ● 5