On Monday the City Chic Collective Ltd (ASX: CCX) share price was in sensational form.
The fashion retailer’s shares surged 11% higher to $3.52.
Why did the City Chic share price surge higher?
Investors were buying the company’s shares after it announced a binding asset purchase agreement to acquire UK-based women’s plus-size clothing retailer Evans for 23.1 million pounds (A$41 million).
Evans is a UK-based retailer of women’s plus-size clothing with a longstanding customer base and strong market position. The Evans assets will be acquired from the Arcadia group, which entered into administration on 30 November.
Management notes that the acquisition provides the company with a platform to launch into a new market worth 5 billion pounds per annum at present.
Is it too late to buy City Chic shares?
According to a note out of Goldman Sachs, its analysts don’t believe it is too late to invest.
This morning the broker reiterated its buy rating and lifted its price target on the company’s shares to $4.25.
Goldman Sachs was pleased with its acquisition of Evans and believes the acquisition will have a positive impact on its business.
The broker commented: “We estimate that the acquisition price implies a 6.0x FY22 EBITDA, vs. 2.2x FY21 EBITDA paid for Avenue in the US and is broadly in line with what CCX would have had to pay to acquire Catherines but arguably delivers greater strategic benefits: (1) immediate scale in the UK, (2) strong platform for cross-selling Avenue and City Chic product, and (3) retaining a strong balance sheet that will not constrain CCX’s ability to invest in future organic and/or inorganic growth.”
“We raise our FY21E/FY22E/FY23E EPS by 4-16% based on revenue growth assumptions of 5-10% for Evans and EBITDA margins to achieve 15% by FY23E. Our 12m TP moves to A$4.25 (from A$3.90). As this offers a potential return of 21%, we retain our Buy rating,” it concluded.