Numis starts Dr Martens at ‘add’

Numis initiated coverage of Dr Martens on Friday with an ‘add’ rating and 180p target price, which it said offers 17% total shareholder return.

Numis noted the shares are down 65% since the IPO in January 21, and 20% year-to-date against a backdrop of the retail sector rallying.

"Slowing revenue growth, a spike in inventory cover and warehouse execution issues have driven two downgrades (Nov 22 and Jan 23) and shaken confidence," it said, adding that mid-term IPO guidance now feels unachievable.

Numis said its estimates are materially below FY24 consensus - revenue 5% below, EBITDA 20% below - driven by its expectations for another downgrade at FY23 results in May.

"However, this is a business built on fundamentals we value in the sector and we see an opportunity to revisit the investment case as the business goes through a reset for next stage of growth.

"Supported by peer analysis, we get comfortable current challenges are short term in nature and believe the medium term global opportunity remains attractive."

Numis said its 180p target price implies a price-to-earnings of 14.5x cal-24, at a discount to relevant peers trading on 17x.

"Once visibility on near term earnings and resolution of operational issues improves we see potential for further upside driven by rerating in line with peers, implying share price of 255p on our conservative outer year margin forecast or 435p if FY22 peak level margins can be restored," it said.