Naked Brand Is Overvalued Given Its Cash and Rump Value
Naked Brand (NASDAQ:NAKD) released its latest prospectus on May 18 showing that the company now has roughly 813.8 million shares outstanding. This allows us to calculate its actual market value. Currently, NAKD has a market cap of $626 million at yesterday’s price of 77 cents for NAKD stock. As a result, the stock looks to be more than fully valued.
This is because there is no reason to believe that its Fredericks of Hollywood online site will generate anywhere near enough revenue to justify that valuation. The company has given no guidance in this matter. Even its business update on Mar. 29 did not provide much of an outlook or frankly any real numbers.
So, here’s what you should know about NAKD stock moving forward.
NAKD Stock: Naked Brand Rump Value
One of the only things we know for sure about NAKD stock right now is that the company had “$270 million in cash and no debt” as of that Mar. 29 date. As I pointed out in my previous article, though, Naked also reports its finances in New Zealand dollars. So, it’s not clear if the $270 million is in USD or NZD. That said, I highly suspect the former, since Naked raised the money in U.S. dollars.
Therefore, subtracting the $270 million from its market value of $626 million leaves a “rump” value of $356 million for its businesses. With this in mind, it seems to me that it’s highly doubtful Fredericks.com can generate north of $20 million in sales.
For example, based on the recently released 20-F annual report, the company made just $57.37 million in sales last year (see page F-3). This is based on the annual report’s exchange rate of $0.7168 per NZD in the 20-F as well as about 80 million NZD in sales for the year. Most of that was from its physical stores, which are now hived off in a management buyout (MBO) as of Apr. 30.
In the report, the company does not break down its online sales. However, in one section of the 20-F (Page 44), it does show sales by geography. Most of its 80 million NZD in sales last year were in Australia and New Zealand, from its physical stores.
But Naked also shows that 24.4 million NZD in sales were in the United States. Since the company has no physical stores stateside, this must mostly be revenue from Fredericks. It works out to $17.5 million in sales (i.e., 24.4 million NZD x $0.7168).
What NAKD Stock Is Worth
To value this company, we must add up the sum-of-the-parts (SOTP), adding the cash to the rump value to get a SOTP value.
This implies that the rump value of $356 million divided by its implied Fredericks.com sales of $17.5 million gives it a value of 20.3 times sales. Given that its U.S. sales fell nearly 22% last year (Page 44), this is way too high of a value for Fredericks.
Instead, a more appropriate value would be 5 times sales — and that’s at best. That would put the rump value at $87.5 million. Combine that with the $270 million in cash and NAKD stock is worth no more than $357.5 million. This is well below its prospectus-derived market capitalization of $626 million.
Therefore, Naked Brand is worth no more than 57% of its present market cap (i.e., $357.5 m / $626 m). As a result, the stock has a SOTP value of no more than 44 cents per share (i.e., 57.1% x 77 cents). In other words, it’s greatly overvalued today.
Of course, this is also close to the 42 cents per share estimate I came up with last month. Until we get more concrete information from Naked Brand about Fredericks.com, it’s also my best guess as to what NAKD stock is worth.
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On the date of publication, Mark R. Hake did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
