Turnaround play in global fashion, Initiate GFG with BUY

Here, Global Fashion Group (GFG), a global fashion marketplace and retailer, connects global and local partner brands to more than 800m consumers. In doing so, GFG is the only pure online fashion-focussed platform of scale in its respective markets, combining the advantages of a global scale with deep local expertise and data-driven operations. It operates under its three well recognized local brands: “Dafiti” in LATAM, “ZALORA” in SEA and “THE ICONIC” in ANZ. The assortment reflects a combination of retail (61% of NMV) and the asset-light and growing marketplace business (39% of NMV), which serves as a flexible business model for partner brands and incurs no inventory risk and higher margins for GFG.

Having been burdened by a lacklustre consumer sentiment over the past years, a turnaround is soon to materialize. The comfortable gross margin of 45% (FY'24) looks set to improve further thanks to an ongoing shift towards the asset-light Marketplace business model. Additionally, GFG continues to face underutilization of its fulfilment capacity (c. 57% in FY'24, eNuW). However, based on an optimistic consumer sentiment outlook in GFG's key regions, we anticipate growth to return as early as FY'26e. Thanks to operating leverage (due to high fixed costs in fulfilment and G&A), the adjusted EBITDA should improve significantly.  As GFG's solid working capital management (neg. € 56m NWC in FY'24) comes with a negative 70 days cash conversion cycle, a return to growth should also lead to disproportionately improving cash generation.

With € 156m of net cash (Y/E'24), the market currently values GFG with a negative EV of € 95m. In light of a materialising turnaround and positive cash generation visible on the horizon, we regard the stock as mispriced. Hence, we recommend to BUY and initiate GFG  with aPT of € 0.80, based on DCF.