Touch of Market

Recent months have been much more interesting for investors than the previous years. IPO of companies such as People Can Fly[1] in December or, above all, Allegro, were enthusiastic about investors[2]. Both companies operate in the area of modern technologies, another company to be listed on the stock exchange in the coming days also combines modern business (e-commerce) with traditional sales. I think that this company is an interesting subject for the entry of evaluation and I will try to find its appropriate share price by comparing it with similar companies. To write the post, I used mainly information from the investor presentation and Answear's investment prospectus[3] and issuer's website .

The following post is made up of four parts. The first section briefly describes the company. In the second part, I describe the market situation and the market environment, then I list the details of the public offering. In the last section I make a comparative Answear’s valuation which will allow me to estimate the share price.

Company

In 2011, the online store www.answear.com was founded, In 2012, Krzysztof Bajołek and Arkadiusz Bajołek founded the company Wearco sp.z o.o. to which the store's operations have been transferred. Currently Answear.com is a leading digital sales platform for branded clothing, footwear and accessories in the region of Central and Eastern Europe, which has been operating since 2011.

The main target group of the Company are young people (aged 20-40), looking for new trends and well-known global brands, who like new technologies, are open to new forms of shopping, value the convenience of shopping and above-average quality of customer service. The company mainly attracts customers with above-average income, willing to spend more than PLN 250 in one order and repeat purchases at least several times a year. According to data for the first half of 2020, 67.1% of orders were made by women[4].

The company currently operates in 7 countries of Central and Eastern Europe: Poland, Czech Republic, Slovakia, Hungary, Romania, Bulgaria and Ukraine. Sales are geographically diversified, and none of the markets accounts for more than 30 percent of total revenues. The store offers about 90 thousand products of over 350 global brands. Among them are popular clothing brands (Mango, Vero Moda), sports brands (Adidas, Nike, New Balance), denim brands (Levi's, Lee, Wrangler), as well as premium brands (Diesel, Guess Jeans, CK, Tommy Hilfiger, Red Valentino, DKNY). On the other hand, products from the economic segment are based mainly on our own label(Answear LAB)[5].

The most important milestones in business include[6]:

2013 - MCI Capital, through the MCI.Private Ventures FIZ fund, acquired a minority package to finance the expansion to CEE.

2014-15 - Starting operations in the Czech Republic, Slovakia, Romania and Ukraine.

2016 - Opening of business in Hungary, the company's revenues reached 20 million Euros.

2017 - Launching a mobile application - a new sales channel. In the same year, the company also introduced a new communication strategy "We Are The Answear".

2018 – Starting operations in Bulgaria, the company’s revenues reached 50 million Euros. The company has also established its own development department to update and develop its IT system supporting on-line sales.

2019 - Opening of a new warehouse with an area of 39,000 m2 in Kokotów.

September 25, 2020 - In the National Court was renamed the Joint Stock Company for Wearco Answear.com SA.

According to the development strategy, presented the company's goal is to maintain a leading role in the market to achieve this, the company is planning activities in four fields[7]:

Extending the product range – Answear.com intends to increase by up to 100 percent by 2024. the number of products available in the assortment on-line store, through the introduction of new brands to offer and extend the offer of available brands. According to the company, this should also lead to higher conversion rates, increase the frequency of purchases and the acquisition of new customers.

Private label development - ANSWEAR LAB provide the ability to generate relatively high margins, which has a positive effect on the profitability of the Company. In addition, the collection offered by ANSWEAR LAB is available only on the Answear platform, which allows you to attract new customers and increase repeat purchases.

Increase sales on exist market - The active customer base built by the Company is currently around 0.9 percent. the entire population in 7 countries (approx. 120 million people) in which Answear operates. Therefore, the Company recognizes the potential for further development, which will eventually increase the revenue. Answear wants to win new customers primarily by intensifying marketing campaigns building brand awareness, as well as extending the product offer.

Development in new markets - The company is considering launching operations in new markets. The potential expansion directions include: Russia, Kazakhstan, the Baltic states and the Balkans. All these markets will be able to be serviced on the same terms as the others, i.e. from the central warehouse in Kokotów.

After the descriptive part, we can go to the company's financial data that has been provided in the prospectus. The following table shows the key financial data of the company:

Table 1. Key financial data of Answear.com (in million PLN).

	2017	2018	2019	LTM IIIQ 2020
Revenues	145.0	220.8	311.2	369.0
Gross profit	42.8	61.9	95.8	117.5
EBIT	-7.8	-7.0	4.5	15.6
EBITDA	-4.6	-3.4	9.7	23.5
Net profit	-1.9	-2.1	1.5	2.6
Assets	85.0	111.1	207.3	220.5
Equity	27.3	35.1	54.2	58.6