Like most ASX retail shares, the Dusk Group Ltd (ASX: DSK) share price has been trading sideways for the past couple of months.
Shares such as JB Hi-Fi Limited (ASX: JBH), Accent Group Ltd (ASX: AX1) and Super Retail Group Ltd (ASX: SUL) have largely been range bound amid the cycling of elevated sales and prolonged lockdowns across major Australian cities.
Looking through the potential near-term volatility, Datt Capital considers the fair value for the Dusk share price to be "around $5 a share", according to a recent article.
That's a potential upside of 60% on today's price of $3.10 at the time of writing.
Why this fund is bullish on the Dusk share price
Tailwinds for consumables sector
Datt Capital highlights a combination of "soft and hard factors" that make the Dusk share price an attractive investment proposition.
Dusk is most widely known for scented candles, in addition to diffusers, essential oils and homewares.
In its article, Datt Capital said that the "products are orientated towards making homes and offices pleasant environments, which has become exceptionally important given the recent lockdowns".
"This 'soft factor' advantage translates into hard benefits; for example, the company's loyalty program now boasts almost 700,000 highly engaged members.
"This translates into exceptional gross margins of almost 70%, while the team has maintained and exercised exceptional capital discipline and allocation decisions. We expect this outperformance to persist over time," they said.
Dusk pushing through recent lockdowns
The fund was pleased with Dusk's recent performance amid the Victorian and NSW lockdowns.
"Around half the company's store network is within these two states, but it has only affected top-line revenue by 28%. This relative outperformance demonstrates that the company's products are actively sought by its loyal customers, despite the state lockdowns."
Looking ahead, the fund is hoping that Dusk "may be able to achieve at least 80% of FY21's revenue, while maintaining an EBIT above $30 million".
Other Dusk share price drivers
Datt Capital pointed to both domestic and international expansion as another catalyst for the Dusk share price.
It notes that the company is currently running about 122 physical stores in Australia. It plans to grow this figure to about 160 stores throughout Australasia by 2024.
In addition, the fund said: "We believe there is significant scope and potential to begin examining larger international markets such as the UK and US for near-term expansion."
