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Here’s why the Noni B share price has doubled in 2 years

The Noni B Limited (ASX: NBL) share price has doubled in just two years. If it wasn’t for the recent share market volatility, I could have been talking about a 170% gain.

Noni B is a fashion retailer that is growing at a fast pace both through organic growth and its recent major acquisition. In-fact, it has grown so much that it’s getting close to the market capitalisation size of Myer Holdings Ltd (ASX: MYR).

In FY18 Noni B achieved impressive results with revenue growth of 17.6% to $372.4 million, like for like sales growth of 4.5%, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 62.7% to $37.2 million and net profit after tax (NPAT) growth of 431.6% to $17.3 million.

A key part of the recent share price growth performance has been the acquisition of Millers, Katies, Crossroads, Autograph and Rivers brands from City Chic Collective Limited (ASX: CCX), formerly known as Speciality Fashion Group.

Under the ownership of Specialty Fashion, these five businesses were loss-making. It made sense for City Chic Collective to sell them – it would raise cash and improve the company’s bottom line. For Noni B it doubled the size of the group and should lead to nearly $1 billion in revenue.

However, at the recent Noni B AGM, management said that the integration is going better than expected. The plan for the new businesses was to be break-even on an EBITDA basis in FY19, with annualised merger benefits of $30 million which would be achieved by the end of FY19 and be fully reflected in FY20.

But, now management are expecting positive EBITDA in FY19 with $30 million of savings already achieved. A further $20 million of annualised savings could be possible by FY20.

Management now think that full year EBITDA could be around $45 million and that FY20 EBITDA could be around $75 million.

If the company achieves the above numbers then it could be good value at today’s price under $3, combined with a grossed-up dividend yield of 6.7%. However, retail is a very tough space with a lot of competitors, so there may be better investment options out there.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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