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Date : 01/06/2021

Dusk Group



Market Cap : 224.16 Million


52 Week Range : $1.58 - $3.91

Share Price : $3.85

Increasing revenues, decreasing costs, and a modest valuation. A "Buy" from us.

Company Analysis

Dusk Group Limited (ASX: DSK) is an Australian retailer of home fragrance products. The Company offers a range of dusk branded products, including candles, ultrasonic diffusers, reed diffusers, essential oils, and home fragrance related homewares. It also operates in the gift products market, which includes a range of other product segments, including flowers, chocolate, perfume, and wine. Its candle products include novelty candles, scented candles, scented pillar candles, unscented candles, taper candles, tealight candles and votive candles. Its fragrances include floral, fresh, fruity, gourmand, woody, berry Christmas, white Christmas, Christmas delight and green Christmas. The Company offers its products through physical stores and online stores. The Company’s subsidiaries include Dusk Australasia Pty Ltd, Dusk Wholesale & Imports Pty Ltd and Dusk Europe Pty Ltd. The Company sells its products from approximately 114 retail locations throughout Australia.

Dusk may be a newly public company, but not new in the business

Dusk started trading in November last year, with an IPO priced at A$ 2 per share. Dusk opened the session at A$ 1.61 and never stopped since then on its upside momentum, an impressive performance for a newly introduced company to the stock exchange. Dusk shares took less than 6-month to appreciate by more than 131% reaching an all-time high at A$ 3.73 per share. The company’s share performance is not just a random occurrence. Dusk is not a new company created overnight; it has been active for many years. Hence, when we look at the company’s financials, we can see that Dusk has been exceptionally performing over the last three years. Dusk exhibits a solid operating performance with ample liquidity and a continuous increase in its operating income. One of the key criteria of success in the retail sector is the CODB metric which is the Cost of Doing Business. The CODB metric is even more important during this period of uncertainty induced by the COVID-19. Lockdowns and sanitary measures have particularly impacted the retail sector last year; however, Dusk has shown its resilience and excellence in management to navigate through this challenging period. The company has even managed to decrease its Cost of doing Business (CODB) metric by achieving strong sales growth and benefits of fixed cost leverage. Comparing Dusk’s first half of FY20, CODB represented 45.7% of total sales, while CODB from the first half of FY21 dropped to 34.7% of total sales.

Pro-forma costs of doing business (CODB) in per cent of total sales

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Source: Dusk Group

Not just another brick-and-mortar retail business

Dusk has a nationwide presence in Australia with more than 118 physical stores in key geographic locations. The group recently opened six new stores in the first half of FY21, two in WA, one in QLD and one in NSW, VIC, SA. Dusk expansions continued and had secured for the second half of FY21 a total of four new stores that are two in QLD, one in NSQ and one in TAS. Dusk is intended to further develop its store network and started to resume its scoping to New Zealand.

Apart from a tremendous expansion of Dusk’s physical stores and the ongoing plan to develop its store network in New Zealand, Dusk’s sales performance was supported as well by the company’s online store. This demonstrates that the company is aware of the critical necessity of the omnichannel strategy to strive in today’s consumer’s preferences. During the first half of FY21, Dusk reported a surge of +120% in online sales which contributed to 8.3% of its total sales.

Dusk reported record performance for the first half of FY21

The rebound was impressive for Dusk during the first half of FY21. The group reported a surge of +55% year-over-year with a revenue of A$ 90.9 million compared to A$ 58.6 million last year in the first half of FY20. The performance represents a like for like sales growth of 49% which is exceptional considering the challenging environment caused by COVID-19. Hence, a significant period of twenty store closures happened during the period in Melbourne which affected the company’s sales. Nonetheless, Dusk continued its expansion with six new stores opened during the quarter. The robust sales have also been contributed by the Dusk online initiative. Dusk took the effort to redesign its web platform to be more user friendly and oriented for e-commerce. The web re-platforming went live recently in April, and we believe Dusk is on the way to further boost its online sales. Online sales grew steadily by 143% during the last 5-quarter. The rise in sales happened particularly during the second half of FY20, due to inflated online sales by a significant period of physical store closures.

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Source: Dusk Group Ltd. (1) Rolling Last 12-month online sales in A$ million. (2) Online penetration in percent of sales.

Company Updates


Growth strategy through four key drivers

Dusk plans to grow through four key drivers that leverage the company’s core competencies:

  1. the Loyalty Model
  2. the omnichannel strategy
  3. the physical store network expansion
  4. the distribution of Dusk proprietary products

As of the first half of FY21, Dusk accounted for more than 634 thousand active rewards members with 141 thousand added recently during the first quarter of this year. The loyalty programme is a fantastic tool for Dusk to develop customer’s retention. Hence, members contributed to nearly 60% of the company’s total sales, which is quite considerable. Moreover, via the data collected from the transaction history, Dusk can enable insights into purchase intent and leverage to cross-sell and upsell opportunities. Furthermore, Dusk understood the critical necessity to have a sophisticated online presence these days. According to research, a recent consumer trend has developed with the advent of e-commerce. Nowadays, consumers tend to check online and compare products and prices before committing to purchase online or at a physical store. With the introduction of Dusk’s omnichannel strategy, the company witnessed a surge in sales particularly during the imposed lockdowns. Dusk’s digital sales channel increased by more than 120% to A$ 13 million per annum and had contributed to about 10% of total sales. Dusk intends to leverage the platform for opportunities of recurring revenue models from growing consumables. Despite disruptions caused by COVID-19, Dusk continued its expansion during the first half of FY21 with six new stores opened. Dusk has a clear plan to maintain its pace in the expansion of its store network. The group has established a strong presence in key locations across Australia. Furthermore, Dusk recently announced its intention to open stores in New Zealand. All in all, we believe Dusk has a clear vision and is poised to grow, the combination of a (1) loyalty programme which proved to be effective during 1HFY21 that contributed to 60% of the total sales, the (2) omnichannel strategy with the development of (3) proprietary products and the (4) physical store expansion is certainly a receipt for success.

Industry Analysis

FY20 was a tumultuous year for the Australian retail sector. The global pandemic was feared to have a devastating effect on many retailers. However, retail collapses hit record lows, thanks to the Australian government initiatives with the “JobKeeper Payment” and the temporary suspension of insolvent trading laws. These measures effectively protected retailers during this difficult time. COVID-19 contributed to changing the way consumers shop. With lockdowns and public health measures, consumers and retailers pivoted online. Some of the retailers realised the necessity to develop the online channel to survive, furthermore, some retailers produced financial results way beyond expectations, which was the case for Dusk. It is without a doubt that the development of the COVID-19 vaccine provides optimism in a near-term return to normalcy.

We think that FY21 may be a challenging year for the retail industry, as retailers must deal with the reduction of stimuli and the beginning of a return to a form of “business as usual”. Moreover, COVID-19 has accelerated digital disruption and changed consumer habits. A different consumer has emerged with new behaviours which we believe will influence the following themes: (1) the economic impact, (2) trust, (3) the rise of digital, and (4) “home as a new hub”.

We believe that Dusk is well-prepared for these changes. Dusk has demonstrated perfect execution of its omnichannel strategy and on top of it has developed an effective Loyalty Model which will allow the company to collect the necessary data to further develop its proposition. Furthermore, looking at the “home as a new hub” theme, Dusk is well-aligned with its product offering.

Investment Thesis

FY20 Financial summary

For the 26 weeks ended 27th of December 2020, Dusk revenues totalled A$ 90.9 million with a net income of A$ 16.9 million.

First Half of FY21 financial performance

The first half of FY21 was a challenging period for Dusk due to 20 stores in Melbourne being forced to close for about 3 months from the 6th of August 2020 to the 27th of October 2020 due to COVID-19 restrictions. Despite the unfavourable business conditions, Dusk managed to generate record sales and earnings. The group totalled a like for like sales superior to 49% year-over-year with store sales up 44%. Dusk maintained an impressive gross margin of 63% to A$ 61.6 million. While COVID-19 has seen a shift in consumption to home-related products, the second quarter of FY21 represented the fifteenth consecutive quarter of like-for -like sales and gross margin growth. Dusk exhibited resilience during the period showing the company’s ability to adapt to the implementation of an omnichannel strategy. Consequently, online sales surged to more than 120% during the period. Another key driver for growth is the ability for Dusk to increase its Average Transaction Value (ATV). The group achieved an ATV of A$ 54 which is 17% higher than reported during FY20. The increase in ATV was the result of a thoughtful shift to higher-priced home fragrance products and refinement of the range to offer larger pack size products across the core candle category. The core candle category accounts for 33.6% of the total sales category and it is the largest sales growth contributor in the first half of FY21 with A$ 30.6 million compared to AS 19.8 million in the first half of FY20, an increase of 54%.

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Source: Dusk Group

Record sales and room for growth

Dusk reported an impressive first half of FY21 and consecutively realised quarter over quarter growth. The first half of FY21 was a terrific period with like-for -like sales growth of +49%. About two-thirds of like for like sales growth was driven by increasing transaction numbers, while average transaction value grew the balance. Dusk store network grew at a steady pace of 7% CAGR in the last 5-year period.

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Source: Dusk Group

Dusk has been bullish since its initial public offering in early November 2020. The company’s shares appreciated by about 130% in just a few months reflecting the group’s robust fundamentals. Looking at Dusk multiples, we can assume that the company is fairly valued with a projected EV/EBITDA of 4.33 times for FY21.

FY20 FY21E FY22E FY23E
Enterprise value 219 186 187 183
P/E ratio 23.4x 7.73x 8.37x 7.53x
Capitalisation/Rev 1.42x 1.31x 1.16x
EV/Rev 1.21x 1.12x 0.98x
EV/EBITDA 4.33x 4.52x 4.04x

We believe Dusk is in a position to grow further as supported by our forecast with an increasing net profit margin of 14.23% CAGR for the next 5-year. The gross profit margin is expected to remain stable at 64%. Moreover, we expect the return on equity to average 23% over the next 5-year which is superior to the average retail industry.

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Technical Analysis

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Volume is continuously declining since the beginning of May 2021, which suggests that market participants are holding their position since their entry around the A$ 3.22 level in early April 2021. DSK has recently formed a symmetrical triangle on the daily chart spanning from early April all-time high at A$ 3.73 to mid-May low at A$ 3.26. The Fibonacci retracement level of 23.6% sitting at A$ 3.22 acts as the near-term support level. DSK will probably retest and consolidate at this level before resuming its upside momentum. DSK is now trading in a range between its recent high at A$ 3.73 and its near-term support at A$ 3.22. The decline in volume and increase in volatility suggest that DSK found its price equilibrium around A$ 3.5 per share.

Key price levels

DSK price action remains quite bullish despite the recent minor correction from it’s all-time high. The key support level sits at the 23.6% Fibonacci retracement at A$ 3.22 per share. We have recognised a strong support area around the 38.2% Fibonacci level which coincide as well with the psychological level of A$ 3 per share. The A$ 3 per share is a critical price for DSK and a violation of this level may spark a short-term selling pressure. On the upside, a clear breakout of A$ 3.8 will open the door for a rally toward A$ 4 and eventually, propel DSK to our price target of A$ 5 per share.


Volume and momentum

Volume decreases since the last 200-day with the 20-day volume average down by -65.8%. The price action remains bullish in the near term, evolving in a range between A$ 3.22 and 3.73 per share.

Trade consideration

  • Market participants might be interested to enter at key support level: A$ 3.40 and A$ 3.2 per share
  • Primary target price above $A 4.0 per share
  • Secondary target price at $A 5.0 per share
  • Consider reducing exposure below A$ 3.0 per share
  • It is recommended exiting the trade below A$ 2.90 per share

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Dusk has been growing steadily over the last five years, with a solid projected store network expansion. Dusk has demonstrated perfect execution of its omnichannel strategy and on top of it has developed an effective Loyalty Model. Dusk’s revenues are rising, their costs are decreasing – leading to increased profitability. With a clear vision, they are poised to grow. We recommend investors to “Buy”.


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