ASX:ATG
Articore Group Ltd
Investment Summary
The fund managers believe that Articore Group Ltd, previously known as Redbubble, is on a positive trajectory. They noted a significant 59% increase in share price in December due to improved market sentiment after a prior decline. In their opinion, the company has successfully returned to positive underlying cash flow against a backdrop of a challenging retail environment. The return of the co-founder has been pivotal in implementing cost-cutting measures that align with a more normalized post-COVID operating framework. The dual-platform model, encompassing Redbubble and TeePublic, generates $450 million in revenue with a solid balance sheet. Fund managers emphasize that, should the company achieve modest mid-single digit operating margins, it presents a favorable valuation at 5-6x EV/EBIT. They regard the recent share price dip as an opportunity to invest, particularly following significant cost-cutting initiatives that have led to neutral cash flow and a path toward profitability for FY24 and beyond.
Commentary From The Managers
Spheria Asset Management
31 Dec 2023
$0.69
- Articore Group (previously named Redbubble) (ATG.ASX) share price rose 59% in December on no new company specific news.
- The recent rally appears to be a reprieve after a prior sell-off.
- In October, the company revealed it had returned to positive underlying cash flow amidst a volatile trading environment.
- The co-founder returned early in the year, focusing on cutting costs and improving cash flow.
- Spheria Asset Management believes the business is taking the right steps to realign its cost base.
- Articore operates leading global online marketplaces, Redbubble and TeePublic, generating $450 million in revenue with a strong balance sheet.
- Assuming a return to modest mid-single digit operating margins, the business trades on 5-6x EV/EBIT.
Spheria Asset Management
30 Sept 2023
$0.51
- Spheria Asset Management identified a significant opportunity in Redbubble (RBL.ASX) after a notable share price decline of 24% in September.
- The fund manager believes that during risk-off periods, micro-cap names like RBL can become oversold due to market liquidity conditions.
- RBL experienced a challenging 18 months with share prices falling significantly from COVID highs, influenced by changing consumer spending patterns.
- The fund manager initiated a position based on the significant sell-off, presenting a favorable entry point.
- Despite reporting a loss last year, RBL generated approximately $470m in revenue and has implemented cost-saving measures totaling $33-$40m to achieve profitability.
- In July 2023, the group achieved neutral cash flow following its cost reduction efforts, indicating a positive outlook for FY24 and beyond.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.