CCC raised to BUY, TP PLN 64.0 - Forced change can be good
Following the reopening of most of CCCs stores and the completion of a successful capital injection we update our operating assumptions and raise our recommendation to BUY from HOLD with a 12m TP of PLN 64.0 (PLN 127.0). While brick and mortar operations were at a standstill from mid-March to early May due to social distancing and regulatory measures, we estimate that a total of ca. 85% of the companys 1,200+ stores are currently operating, in 20/23 of CCCs offline markets. E-commerce has been catalysed by the lockdown, and we expect its growth to continue to progress, dynamically fuelled by changing customer habits, to reach ca. 47% of sales in FY 22e. The company successfully raised PLN 506.9 mn in a placement of 13.7 mn new shares at a price of PLN 37 and secured bank liquidity until April21e while obtaining covenant waivers from bondholders. The crisis should decrease patience for loss-making endeavours and speed up strategic actions with regard to the reduction of margin-dilutive DACH exposure. We view a faster development of e-commerce and a more determined reduction of deadweight positively. We consider weak results for FY 20e (RCBe EBIT PLN -650 mn, EBITDA of PLN 111 mn) to be widely priced-in and see the current share price as a relatively attractive entry-point given an expected recovery into the black in FY 21e (RCBe EBIT of PLN 94 mn, EBITDA of PLN 822 mn) and a more streamlined business in the mid-term.CCC is engaged in the wholesale and retail trade of clothing and footwear. Co. offers its products to wide range of consumers, from demanding clientele of trendy boutiques to value-oriented medium segment customers, to less wealthy customers seeking reasonably priced quality footwear. Co. pursues a strategy of brand diversification, which is reflected in its three autonomous distribution channels: a chain of official CCC stores, BOTI footwear shops and QUAZI boutiques. Co. offers more than 2,500 designs of footwear. Co. also owns more than 67 proprietary brand names e.g. Lasocki.
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