In its August monthly update, the QVG Opportunities Fund has named two cheap and growing ASX retail shares to buy.
The Adairs Ltd (ASX:ADH) share price rose 13 per cent in August. Adairs shares are currently trading at $2.52, up 73 per cent over the past 12 months.
In late August, the homewares retailer reported record sales, profits and dividends for FY18.
Sales were up almost 19 per cent, with like for like sales growing at a very impressive 14 per cent. Adairs profits jumped 45 per cent higher to $30.6 million and the company increased its full year FY18 fully franked dividend by 69 per cent to 13.5 cents per share.
Adairs has 167 stores in Australia and New Zealand. QVG says the company has been successful at taking market share via exclusive product, growing online sales and category expansion beyond their core Manchester ranges.
With industry-leading online sales penetration approaching 15 per cent, larger stores allowing for category expansion, 6-8 new stores per annum, and share gains from department stores, QVG believes Adairs can grow earnings at double-digit rates over the medium term.
The fund says ADH shares trade on 8x forward EBIT, a 35 per cent discount to small cap industrial peers.
Adairs shares trade on an attractive fully franked dividend yield of 5.35 per cent.
The Speciality Fashion Group Ltd (ASX:SFH) share price rose almost 14 per cent in August. Speciality Fashion shares are currently trading at $1.30, and have soared 333 per cent over the past 12 months.
In late August, the fashion retailer reaffirmed its intention to start paying dividends again over the coming year.
In May, Speciality Fashion sold its Katies, Millers, Crossroads, Autograph and Rivers brands to focus solely on plus-size women’s apparel chain City Chic.
QVG said Speciality Fashion was a “compelling” stock, with the fund recently increasing its holding.
The fund said City Chic is a high margin business with a very high proportion of online
sales, global growth and store roll out potential and management who are fanatical about understanding the needs of their customer.
QVG says that with just one broker covering the Specialty, a less than $250m market cap and with the earnings power of City Chic having long been hidden within the previously larger SFH Group, its not hard to see why the shares are under-appreciated.
QVG says Speciality Fashion shares trade on just 10x EBIT.
The QVG Opportunities Fund performance for August was a gain of 4.80 per cent (net) versus the benchmark rise of 2.49 per cent. This takes the fund’s first year performance to a gain of 54.7 per cent versus a rise of 22.3 per cent by the Small Ords Accumulation Index.