Date Theme Sector

1 September 2022 Financial Result Consumer Discretionary

Company

Mosaic Brands (MOZ)

M/W: Customers are returning

Recommendation MARKET WEIGHT
12-mth target price (AUD) $0.32
Share price @ 31-Aug-22 (AUD) $0.32
Mosaic Brands reported FY22a underlying EBITDA of -$15.7m, in line with guidance (-~$16m). Forecast 12-mth capital return 0.0%
Revenue beat our forecasts marginally driven by Other revenue and while our gross margin Forecast 12-mth dividend yield 0.0%
dollar forecasts were in line, gross margins missed by 172.3bps due to higher revenue. Cashflow 12-mth total shareholder return 0.0%
was softer but reflects normalisation post COVID-19. Looking forward, we are encouraged by the
incremental improvement in store foot traffic, additional improvements in CODB and clear
Market cap ($m) 34.4
inventory position. While we believe Mosaic Brands is in a solid position to achieve growth in
Enterprise value ($m) 24.5
earnings, we await further signs of customer stability before becoming more constructive. M/W.
Shares on issue (m) 107.6
Sold short (%) 0.0
 Key Points
ASX All Ords weight (%) 0.0
Median turnover/day ($m) 0.1
Valuation: TP $0.32/share, +39.1% vs. prev. Our valuation ($0.98/share) reflects MOZ’s current
shareholders value, adjusting total equity for the full conversion of the Convertible Notes in
1H25e (assumes interest is capitalised to FY23e). To reflect trading uncertainty and illiquidity
concerns we apply a 62.0% discount to derive our TP. A valuation of $0.98/share, reflects a John Hynd
FY23e PE of 7.0x (peers 10.5x). Our valuation is negatively impacted by EBITDA downgrades. john.hynd@wilsonsadvisory.com.au
Tel. +61 2 8247 6661
Model changes: EBITDA forecasts decline -33.2% and -24.9% to $31.2m and $40.8m in FY23e
and FY24e respectively. Changes to our forecasts are driven by; (i) revised store revenue metrics Tom Camilleri
to reflect a run-rate below FY19a; (ii) softer online sales growth; and (iii) five incremental big box tom.camilleri@wilsonsadvisory.com.au
Rivers stores. EziBuy losses due to freight challenges are also a minor headwind again in 1H23e. Tel. +61 2 8247 3106

Guidance: No quantitative guidance. Sales for the first eight weeks +49.0% yoy, Store LFL’s
+18.0% yoy and Online +3.0% yoy. Stores reported negative growth in July/August 2022, given 12-mth price performance ($)
lockdowns in NSW and Vic implying a potential return to normalised trading. Positively, July
EBITDA was the highest in 5 years and an additional $10.0m of CODB savings have been 0.90
realised (freight, rent, other costs).
0.77

0.63
Strategy: MOZ is rolling out a “Big Store” strategy which will utilise Rivers. New stores will be
larger format (~1,000 sqm) and house big, well-known brands (Nike, Adidas, Tommy, etc.) as 0.50
well as a streamlined range of other leading brands like Millers, Katies and W. Lane. Big box 0.37
economics are attractive and could deliver EBITDA of $0.5-0.6m annually at a group level or
0.23
~$1.0m pre logistics, deliveries and HO allocation (WILSe). MOZ expects to be able to add 15-20
stores annually and 75 stores in total, which implies potential incremental EBITDA of $45.0m. 0.10
Aug-21 Dec-21 Apr-22 Aug-22
MOZ XAO

1-mth 6-mth 12-mth

Abs return (%) 39.1 (52.9) (29.7)
Rel return (%) 38.0 (52.3) (23.9)

Financial summary (Y/E Jun, AUD) FY21A FY22A FY23E FY24E FY25E Key changes 9-Jun After Var %
Sales ($m) 676.8 571.4 624.7 676.5 741.8 Sales FY23E 745.8 624.7 -16%
EBITDA norm ($m) 51.1 (15.7) 31.2 40.8 48.5 ($m) FY24E 766.3 676.5 -12%
Consensus EBITDA ($m) 38.8 45.1 FY25E 789.8 741.8 -6%
EPS growth (%) (122.7) (408.9) (107.2) 189.9 12.1 EBITDA FY23E 46.7 31.2 -33%
EV/EBITDA (x) 0.2 n/m 1.5 0.7 0.2 norm FY24E 54.3 40.8 -25%
P/E (x) 2.6 n/m 11.5 4.0 3.5 ($m) FY25E 55.0 48.5 -12%
FCF yield (%) 371.4 129.5 (43.9) 85.4 44.4 Price target 0.23 0.32 40%
Rating M/W M/W
Source: Company data, Wilsons estimate, Refinitiv.
All amounts are in Australian Dollar (A$) unless otherwise stated.

Wilsons Equity Research

Analyst(s) who owns shares in the Company: n/a Issued by Wilsons Advisory and Stockbroking Limited (Wilsons) ABN 68 010 529 665 – Australian Financial Services
Licence No 238375, a participant of ASX Group and should be read in conjunction with the disclosures and disclaimer in this report. Important disclosures regarding companies
that are subject of this report and an explanation of recommendations can be found at the end of this document.
1 September 2022 Consumer Discretionary
Mosaic Brands Limited

 Business Description  Investment Thesis

Mosaic Brands Limited (MOZ) is a lady’s fashion retailer targeting the
older, mature demographic (50+ years old). It acquired Pretty Girl Pty Ltd
in 2015 and Specialty Fashion Group in 2019 to expand its retail
network to more than 1,000 stores nationwide. Its current brand portfolio
consists of Noni B, Rockmans, Millers, W.Lane, Katies, Autograph and
Rivers.
Since Alceon Group’s acquisition of a majority shareholding in NBL in
FY15a, MOZ has recorded significant improvements in gross margins and
has shown early signs of success. More recently it has been a victim of
national bushfires, COVID-19 and Omicron, but took the opportunity to
material reduce its cost base and once demand returns it should have
more than 85% market share.

 Catalysts  Risks
Interest rate increases (core customer has money in banks), improved Poor Mother’s Day trading period, aggressive discounting by peers and a
online sales/presence and new cost base. rapid decline in broader retail sales and consumer confidence.

P&L ($m) FY21A FY22A FY23E FY24E FY25E Balance sheet ($m) FY21A FY22A FY23E FY24E FY25E
Sales 676.8 571.4 624.7 676.5 741.8 Cash & equivalents 57.8 42.8 19.4 36.9 58.7
EBITDA norm 51.1 (15.7) 31.2 40.8 48.5 Current receivables 1.7 2.5 4.8 5.2 5.7
EBIT norm 33.1 (27.2) 11.7 19.8 25.7 Current inventory 110.1 116.7 91.7 99.7 109.9
PBT norm 23.1 (36.9) 4.3 12.4 22.3 PPE 15.9 10.8 8.7 17.0 23.6
NPAT norm 13.6 (41.5) 3.0 8.7 15.6 Intangibles 20.0 13.3 13.3 13.3 13.3
NPAT reported 2.8 (11.2) 3.0 8.7 15.6 Other assets 160.5 156.4 155.1 151.4 144.7
EPS norm (cents) 12.5 (38.6) 2.8 8.1 9.0 Total assets 366.0 342.5 293.0 323.4 355.9
DPS (cents) 0.0 0.0 0.0 0.0 0.0 Current payables 197.6 201.7 141.4 149.5 155.7
Total debt 31.5 32.9 32.9 32.9 32.9
Growth (%) FY21A FY22A FY23E FY24E FY25E Other liabilities 149.5 145.0 145.0 145.0 145.0
Sales (5.2) (15.6) 9.3 8.3 9.7 Total liabilities 443.2 427.3 366.9 375.0 381.2
EBITDA norm (211.6) (130.7) (298.9) 30.6 19.0 Minorities 0.0 0.0 0.0 0.0 0.0
NPAT norm (122.7) (406.3) (107.2) 189.9 80.2 Shareholders equity (77.2) (84.8) (73.9) (51.6) (25.3)
EPS norm (cents) (122.7) (408.9) (107.2) 189.9 12.1
DPS (cents) n/m n/m n/m n/m n/m Cash flow ($m) FY21A FY22A FY23E FY24E FY25E
Operating cash flow 128.9 44.6 (15.1) 29.4 33.8
Margins and returns (%) FY21A FY22A FY23E FY24E FY25E Maintenance capex 0.0 0.0 0.0 0.0 0.0
EBITDA margin 7.5 (2.7) 5.0 6.0 6.5 Free cash flow 128.9 44.6 (15.1) 29.4 33.8
EBIT margin 4.9 (4.8) 1.9 2.9 3.5 Growth capex (1.8) (4.1) (6.3) (6.3) (6.3)
PBT margin 3.4 (6.5) 0.7 1.8 3.0 Acquisitions/disposals (0.1) (1.3) (1.9) (5.7) (5.7)
NPAT margin 2.0 (7.3) 0.5 1.3 2.1 Dividends paid 0.0 0.0 0.0 0.0 0.0
ROA 9.0 n/m 4.0 6.1 7.2 Other cash flow 0.0 (11.0) 0.0 0.0 0.0
ROIC (31.9) n/m (19.3) (35.6) (50.3) Cash flow pre-financing 127.1 28.2 (23.3) 17.4 21.8
ROE (17.6) n/m (4.1) (16.8) (61.9) Funded by equity 0.0 (1.1) 0.0 0.0 0.0
Funded by cash/debt 29.1 16.1 23.3 (17.4) (21.8)
Interims ($m) 2H21A 1H22A 2H22A 1H23E 2H23E
Sales 332.7 277.6 293.7 334.2 290.5 Liquidity FY21A FY22A FY23E FY24E FY25E
EBITDA norm 6.0 8.0 (23.7) 11.9 19.3 Cash conversion (%) 257.4 (263.0) (20.6) 99.4 90.6
EBIT norm (3.3) 3.3 (30.6) 3.4 8.2 Net debt ($m) (26.4) (9.9) 13.4 (4.0) (25.9)
PBT norm (12.6) 2.0 (38.9) (0.3) 4.5 Net debt / EBITDA (x) (0.5) 0.6 0.4 (0.1) (0.5)
NPAT norm (8.2) (5.1) (36.4) (0.2) 3.2 ND / ND + Equity (%) 25.5 10.5 (22.2) 7.2 50.6
NPAT reported (24.1) 14.3 (25.5) (0.2) 3.2 EBIT / Interest expense (x) 3.3 (2.8) 1.6 2.7 7.6
EPS norm (cents) (8.4) (4.7) (33.6) (0.2) 2.9
DPS (cents) 0.0 0.0 0.0 0.0 0.0 Valuation FY21A FY22A FY23E FY24E FY25E
EV / Sales (x) 0.0 0.0 0.1 0.0 0.0
Stock specific FY21A FY22A FY23E FY24E FY25E EV / EBITDA (x) 0.2 n/m 1.5 0.7 0.2
Store sales growth (%) (17.0) (24.4) 13.7 10.3 11.4 EV / EBIT (x) 0.2 n/m 4.1 1.5 0.3
Online sales growth (%) 25.0 5.7 5.0 5.0 5.0 P / E (x) 2.6 n/m 11.5 4.0 3.5
EziBuy growth (%) 2.5 2.8 2.5 2.5 2.5 P / BV (x) n/m n/m n/m n/m n/m
FCF yield (%) 371.4 129.5 (43.9) 85.4 44.4
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
Payout ratio (%) 0.0 0.0 0.0 0.0 0.0
Weighted shares (m) 108.5 107.6 107.6 107.6 172.9

Source: Company data, Wilsons estimate, Refinitiv.

All amounts are in Australian Dollar (A$) unless otherwise stated.

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1 September 2022 Consumer Discretionary
Mosaic Brands Limited

Changes to forecasts
We have updated our forecasts to reflect the FY22a result material. Our NPAT forecasts -78.1% (vs. prev.) to
$13.7m driven by the changes below:

• Revenue: -14.5% (vs. prev) to $672.9m, reflecting the following key changes:

o Mozaic Stores: Our forecasts -16.4% (vs. prev.) to $389.2m, as we rebase our revenue per store
forecasts to $0.413m/store. This reflects revenue per store -20.0% vs. FY19a levels as foot
traffic continues to recover for MOZ’s store network.

o Mozaic Online: Our forecasts -26.5% (vs. prev.) to $123.6m, reflecting a normalisation in growth
rates from elevated levels in FY21a. Our forecast imply +5.0% yoy growth in Mozaic Online.

• Gross margins: +137bps (vs. prev.) to 53.1% and provides a partial offset to our revenue downgrades.
Higher gross margins are expected in FY23e given MOZ finished FY22a in a cleaner inventory position.

• CODB: -8.2% (vs. prev.) to $348.6m, largely driven by employee expenses -16.2% (vs. prev.) to $131.2m
reflecting +1.8% yoy growth as MOZ is now starting to see the benefits from the roster optimisation
performed in FY22a. This is offsetting the salary increases to be paid under the retail award (+4.6% yoy).

Figure 1: MOZ old vs. new forecasts (A$m)

FY23e FY24e

Old New Change Old New Change

Stores 1,010 942 -6.7% 1,010 947 -6.2%
Store Revenue 465.8 389.2 -16.4% 475.1 431.0 -9.3%
Online Revenue 168.1 123.6 -26.5% 176.5 129.8 -26.5%
EziBuy Revenue 111.8 111.8 0.0% 114.6 115.7 0.9%
LFL grow th (stores) 28.4% -25.0% -5,340 bp 2.5% 10.0% 750 bp
Other 41.1 48.3 17.6% 43.1 50.7 17.6%
Total Revenue 786.8 672.9 -14.5% 809.4 727.2 -10.2%
Gross Profit 385.6 331.5 -14.0% 403.8 359.0 -11.1%
Gross Profit Margin 51.7% 53.1% 137 bp 52.7% 53.1% 37 bp
Mosaic EBITDA 41.7 30.1 -27.7% 49.2 35.6 -27.6%
EziBuy EBITDA 5.0 1.1 -78.1% 5.2 5.2 0.9%
EBITDA 46.7 31.2 -33.2% 54.3 40.8 -24.9%
EBITDA margins 5.9% 4.6% -130 bp 6.7% 5.6% -110 bp
D&A 20.6 19.5 -5.3% 21.2 21.0 -1.0%
EBIT 26.1 11.7 -55.2% 33.1 19.8 -40.2%
Interest - 6.5 - 7.4 13.3% - 6.5 - 7.4 13.8%
Tax - 5.9 - 1.3 -78.1% - 8.0 - 3.7 -53.4%
NPAT (norm alised) 13.7 3.0 -78.1% 18.6 8.7 -53.4%
Source: WILSe.

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1 September 2022 Consumer Discretionary
Mosaic Brands Limited

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1 September 2022 Consumer Discretionary
Mosaic Brands Limited

Disclaimers and Disclosures

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Wilsons restricts research analysts from trading in securities for which they write research. Other Wilsons employees may hold interests in the company,
but none of those interests are material. Wilsons further advises that at the date of this report, neither Wilsons Advisory and Stockbroking Limited or
Wilsons Corporate Finance Limited have any material interests in the company. Wilsons Corporate Finance Limited ACN 057 547 323, AFSL 238 383
acted as Lead Manager and Underwriter in the May 2018 placement and entitlement offer of Noni B Limited securities and Financial Advisor on the
November 2019 acquisition of EziBuy Limited for which it received fees or will receive fees for acting in this capacity. Wilsons Corporate Finance Limited
ACN 057 547 323, AFSL 238 383 acted as Lead Manager and Underwriter in the September 2021 capital raise of convertible notes of Mosaic Brands
Limited.

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