Here’s why this fundie thinks Lovisa (ASX:LOV) share price will rise

The Lovisa share price is trading higher by 4.55% to $11.17 today, amid a broader rise in retail shares on the ASX.
The post Here’s why this fundie thinks Lovisa (ASX:LOV) share price will rise appeared first on The Motley Fool Australia. –

A young woman wearing a silver bracelet raises her sunglasses in amazement, indicating positive share price movement in jewellery shares

Australian fashion jewellery company Lovisa Holdings Ltd (ASX: LOV) could be the next H&M or Zara, according to L1 Capital co-founder and chief investment officer, Mark Landau.

The fund manager believes Lovisa’s recent acquisition of Beeline in Europe will generate a strong return on investment for the company over the next 1 to 2 years. 

The Lovisa share price is currently trading 4.73% higher at $11.29, amid a broader rise in retail shares on the ASX today.

One of the “most exciting” Australian retail shares

Describing Lovisa as “one of the most exciting retail stocks in Australia”, Landau says the Beeline acquisition will become the foundation of its future growth.

“Lovisa has established itself as a truly global, high growth, fast-fashion business selling affordable jewellery to fashion-conscious young females,” he said.

Landau believes this low-cost growth move will be earnings accretive in the short term, saying the buyout of Beeline was “for basically nothing”. 

The total consideration for Beeline was a mere 60 Euros (A$96.6) – yes 60 Euros, not 60 million – allowing Lovisa to accelerate its store rollout in a low cost manner across Europe.

With such a low acquisition cost and modest capex requirements going forward, Landau thinks the transaction will generate a strong return on investment over the next 1 to 2 years.

In the medium term, Landau believes Lovisa has the potential to become a major global fashion brand, “like H&M or Zara”. This due to its strong customer loyalty, attractive margins, high returns on capital and a relatively weak set of competitors.

More on Lovisa’s Beeline acquisition

The acquisition of the European retail store network of German wholesaler Beeline GmbH, for just 60 Euros will see Lovisa’s retail store count jump by a quarter.

It is expected to add more than 80 stores to the Lovisa global store network across seven European countries.

The Beeline Group operates 114 fashion jewellery and accessories stores across Germany, Switzerland, the Netherlands, Belgium, Austria, Luxembourg, and France, under the brands Six and I Am.

Lovisa’s largest markets meanwhile are Australia, where it operates approximately 152 stores, and South Africa, with 62 stores.

About the Lovisa share price in 2020 

The Lovisa share price has lost about 6% in value this year. It started the year at $12, before plunging to $2.34 at the height of the pandemic in March – its 52-week lows.

The company commands a market cap of $1.15 billion.

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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Here’s why this fundie thinks Lovisa (ASX:LOV) share price will rise appeared first on The Motley Fool Australia.

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