Global Fashion Group inspires the analysts

Düsseldorf The Global Fashion Group (GFG) is relatively unknown in Germany. The online fashion retailer has developed rapidly over the past year. The share of the company, which has been listed since 2019, experienced a slump in April 2020 and was now only around one euro. Since then, however, the Global Fashion Group has raised its forecast several times – and made it into the SDax small-cap index. On Friday, it was quoted at a little more than twelve euros at the close of the market.

At the annual balance sheet and Capital Market Day on Monday, Co-CEO Christoph Barchewitz will probably announce that he has achieved a positive Ebitda for the first time in a full financial year. He had already announced this in the “Börsenzeitung” at the beginning of January. And it shouldn’t be detrimental to the positive price development. What do you need to know about the Global Fashion Group? Seven questions and answers.

The company basically acts like Zalando, only in other markets. The Global Fashion Group is active in 17 countries, the most important markets are Russia, Brazil, Australia and Indonesia. Worldwide, in the 2020 corona crisis, the proportion of fashion sold over the Internet rose from 20 to 30 percent. It is estimated that it will grow to around 50 percent in the coming years.

In the regions in which the Global Fashion Group is active, the values ​​are significantly lower. In 2019, the online penetration of the fashion trade in the GFG stores was just around seven percent on average.
The concept: GFG offers a platform for fashion under typical national brands in the various countries, and the management is also completely on site. The e-commerce platforms are called Iconic, Zalora, Dafiti and Iamodo. 99 percent of the personnel costs are incurred in the respective national currencies, marketing and the local brands are managed locally. The top 50 global brands, on the other hand, are managed centrally.

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Why is the company so unknown in this country?

In a way, the Global Fashion Group is a virtual company. Although it is listed in Germany, it does not run any business here. The headquarters of the holding company are located in Luxembourg. Christoph Barchewitz operates from London, the other CEO, Patrick Schmidt, from Kuala Lumpur.

The reason for the listing in Germany is perhaps due to the fact that the main investors Kinnevik and Rocket Internet have had good experiences here. In addition, the share is quoted in euros, even if the management is based in London.

Who are the largest shareholders?

As with Zalando, the Swedish investor Kinnevik is involved in GFG, here with 37 percent. It was only in mid-February that the investor announced that it would be leaving Zalando by offering the Kinnevik shareholders shares in Zalando. At the same time, the Swedes announced that they want to invest more in companies that are in the earlier stages of development.

According to analyst Volker Bosse from the Baader Bank The GFG need not worry: “The Global Fashion Group made up just ten percent of Kinnevik’s portfolio so far. When Zalando is out, it will be 16 percent and then fits into Kinnevik’s strategy. ”

In fact, GFG’s market capitalization is only around a tenth of Zalando’s, but it has even more potential. The second important shareholder is Rocket Internet with almost 15 percent, the investor Crestbridge holds 9.4 percent, the Scottish investor Baillie Gifford 6.4 percent. Slightly less than a third is in free float.

How did the Global Fashion Group get through the last year?

In the first three quarters of 2020, the company grew consistently double-digit on a currency-adjusted basis, with steadily increasing numbers. While it was around 13 percent growth in the first quarter, it was ten percentage points more in the second and then a plus of 35 percent in the value of goods (NMV) in the third quarter.

But in April the share fell to around one euro. Co-CEO Barchewitz told the “Börsenzeitung” in January that 2020 should have remained positive for Ebitda. In 2019, sales were 1.35 billion euros and the net loss for the year was 137 million euros.

Can you do a profitable fashion trade on the Internet?

Zalando has demonstrated that the strategy of first gaining market share, then becoming a platform provider and only then striving for profitability can succeed. On the basis of a financial analysis comparison of the two companies, Baader analyst Bosse came to the following conclusion on the basis of the most important indicators such as active customers, gross margin, number of orders or goods value per customer: “After that, GFG 2019 is where Zalando was in 2013.”

However, sales growth at GFG was lower than at the time at Zalando. What you have to consider for the pandemic year 2020: Less fashion was needed in all countries worldwide, GFG also felt that, as Barchewitz confirmed to the “Börsenzeitung” in January.

At GFG, you have to take into account that in the 17 countries in which the company is active, customers are only just beginning to switch their shopping channels from brick-and-mortar to online retail. This is already more established in this country and in many industrialized nations.

What are the risks of the share?

The markets in which the Global Fashion Group is active are very volatile. The risks are therefore more due to possible restrictions on the movement of goods. Take Russia as an example: If sanctions are imposed, this has an impact on business. Even if interest rates rise, there are risks. In the current phase with extremely low interest rates, it is less important when profits come.

What opportunities does the share hold?

The global activity also diversifies the risk: “The share is interesting because it is so wonderfully diversified, it is traded in euros, but around a third of sales are distributed across the respective emerging market regions,” says Volker Bosse from Baader Bank. The potential of the markets in which GFG is active results from the population structure and development in these countries. There are many more young people there who are keen to consume and have a lot of catching up to do because they are only just moving up to the middle class. Therefore, according to Bosse, the growth potential is still very high.

Of the six Bloomberg-listed analysts who observe the Global Fashion Group, five see the share as a buy recommendation. The target price at Stifel is six euros, but the valuation from November is Morgan Stanley spends eleven euros, HSBC and Baader Bank see the share at 15 euros, Goldman Sachs at 16 euros and Berenberg at 17 euros.

More: In order to focus on young growth companies in the future, Kinnevik wants to pass on his stake in the Berlin MDax company.


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