Take Off S p A : KT&PARTNERS “Firepower to capture M&A opportunities”

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Take Off S.p.A.

Apparel

Firepower to capture M&A opportunities

ADD | Fair Value: €8.37 (€8.07) | Current Price: €4.35 | Upside: 93%

€ Million

FY19A 33.2

FY20A 22.3

FY21A 28.0

FY22E 35.0

FY23E 44.8

FY24EFY25E

Total Revenues EBITDA margin Net Profit margin

54.1 61.7

6.2 18.7% 3.5 10.7% n.a.

6.5 29.1% 3.8 17.1% n.a.

9.5 34.0% 5.6 20.1% 0.36 (12.1)

10.5

13.8

17.0 19.7

EPS NFP

(4.7)

(0.1)

29.9% 6.1 17.3% 0.39 (10.7)

30.8% 7.6 17.1% 0.49 (14.6)

31.4% 32.0% 9.5 11.1 17.6% 18.0% 0.61 0.71 (21.0) (29.1)

Source: Company data (2019-21), KT&Partners' elaboration (2021-24)

Outstanding Profitability, Strong Cash Generation, and Interesting Dividend Yield. In line with preliminary results, FY21 TKO-IT's sales revenues reached €26.4mn growing by 24.6% YoY (from €21.2mn) thanks to gradual easing of restrictions related to COVID-19. Total revenues reached €28mn in FY21 (+24.6% YoY), of which €21.4mn (+38% YoY) attributable to Take Off and €6.6mn (-3.4% YoY) to OverKids. Despite the persistent COVID-19 restrictions the Group shown strong resilience and ability to increase profitability also thanks to inventory stock rotation, cost-saving activities, and an average selling price improvement across all business units (+12.7% and +18.4% compared to 2019 for Take Off and OverKids, respectively). Furthermore, thanks to lower-than-expected cost of service and other operating expenses incidence, EBITDA FY21 jumped to €9.5mn (from €6.5mn), achieving an outstanding EBITDA margin of 34% (+4.9pp YoY) and almost +4pp with respect to our projections (made before TKO-IT preliminary results announcement). Net income soared to €5.6mn (+47.8% YoY), almost +14% above our expectations (made before TKO-IT preliminary results announcement). Net cash position improved from €0.1mn in FY20 to €12mn in FY21, mainly due to €11.2mn of IPO AUCAP (adjusted for IPO's costs) and a strong cash generation with €6.3mn operating cash flow (OCF/EBITDA of 67% vs 31% in 2020) and FCF/EBITDA of 54% (vs 18% in 2020). Finally, TKO-IT's BoD proposed to the Shareholder Meetings a €0.18 dividend per shares (4.1% dividend yield), resulting in a payout ratio of 72.3% (or 50% based on group net income).

Business Development Update. In 2021, despite the slowdown caused by COVID-19, the Company was able to open new 17 stores (of which 1 Take Off and 16 Overkids), reaching 143 stores in Italy at the end of the year. According to TKO-IT's management, 12 new store openings (net of expected closure) are expected by the first half of 2022, of which 10 Take Offs' stores and 2 Overkids' stores (15 openings and 13 closings). More specifically, 6 of the 10 new Take Off brand openings are based in Northern Italy, pursuing the sales network expansion plan announced in the IPO.

Estimates Revision. Based on FY21 financial results, we have revised our 2022-24 estimates slightly downward, taking into account: i) the lower-than-expected Overkids sales revenues in FY21 ii) the slowdown of sales in the first quarter of the year caused by the outbreak of COVID-19 variant (Omicron); and iii) the rising energy prices, cost transportation and global raw material shortages. As a result, we now anticipate FY22E revenues at €35mn, growing to €54.1mn in FY24E. Moreover, despite the higher-than-expected FY21 EBITDA margin, we prudentially maintained the same profitability forecasted in our previous estimates. We expect the Company to remain cash positive throughout the forecast period and therefore we believe that the company has a strong firepower to expand through M&A (which however is not included in our estimates).

Fair value at €8.37ps. Our valuation - based on both DCF and EV/EBITDA multiple models - returns an equity value of €130.9mn or €8.37ps, with an ADD rating and an upside of +93% on current market price.

Relative Performance Chart since YTD

Research Update

Take Off S.p.A.

Price: €4.35| Fair Value: €8.37

Key Figures - Take Off S.p.A.

Per Share Data

Total shares outstanding (mn)

EPS

Dividend per share (ord)

Dividend pay out ratio (%)

Profit and Loss (EUR million)

Total Revenues

EBITDA

EBIT

EBT

Taxes

Tax rate

Net Income

Balance Sheet (EUR million)

Total fixed assets

Net Working Capital (NWC)

Provisions

Total Net capital employed

Net financial position/(Cash)

Total Shareholder's Equity

Cash Flow (EUR million)

Net operating cash flow

Change in NWC

Capital expenditure

Other cash items/Uses of funds

Free cash flow

Enterprise Value (EUR million)

Market Cap

Minorities

Net financial position/(Cash)

Enterprise value

Ratios (%)

EBITDA margin

EBIT margin

Gearing - Debt/equity

Interest cover on EBIT

NFP/EBITDA

ROCE

ROE

EV/Sales

EV/EBITDA

P/E

Free cash flow yield

Growth Rates (%)

Sales

EBITDA

EBIT

Net Income

Current price (€)

Fair Value (€)	Sector	Free Float (%)
4.35	8.37	Apparel	20.0%
2019A	2020A	2021A	2022E	2023E	2024E	2025E
n.m.	n.m.	15.62	15.62	15.62	15.62	15.62
n.m.	n.m.	0.36	0.39	0.49	0.61	0.71
n.a.	n.m.	0.18	0.10	0.12	0.15	0.18
28%	178%	50%	25%	25%	25%	25%
2019A	2020A	2021A	2022E	2023E	2024E	2025E
33.2	22.3	28.0	35.0	44.8	54.1	61.7
6.2	6.5	9.5	10.5	13.8	17.0	19.7
4.6	5.0	7.7	8.0	10.7	13.4	15.6
5.1	5.0	7.2	8.5	10.8	13.4	15.7
(1.5)	(1.2)	(1.6)	(2.5)	(3.1)	(3.9)	(4.5)
30%	23%	22%	29%	29%	29%	29%
3.5	3.8	5.6	6.1	7.6	9.5	11.1
2019A	2020A	2021A	2022E	2023E	2024E	2025E
9.9	10.2	8.5	11.9	14.1	15.1	15.0
(1.3)	2.2	4.0	5.7	6.2	7.0	8.5
(0.5)	(0.7)	(1.0)	(1.4)	(1.9)	(2.5)	(3.2)
8.1	11.7	11.5	16.2	18.5	19.7	20.3
(4.7)	(0.1)	(12.1)	(10.7)	(14.6)	(21.0)	(29.1)
12.8	11.8	23.7	26.9	33.0	40.7	49.4
2019A	2020A	2021A	2022E	2023E	2024E	2025E
n.a.	5.3	8.0	8.1	10.7	13.1	15.2
n.a.	(3.5)	(1.9)	(1.6)	(0.6)	(0.8)	(1.5)
n.a.	(0.7)	(1.3)	(1.5)	(1.5)	(1.5)	(1.5)
n.a.	0.2	0.3	0.4	0.5	0.6	0.7
n.a.	1.3	5.1	5.4	9.1	11.4	12.9
2019A	2020A	2021A	2022E	2023E	2024E	2025E
n.m.	n.m.	68.0	67.9	67.9	67.9	67.9
-	-	-	-	-	-	-
(4.7)	(0.1)	(12.1)	(10.7)	(14.6)	(21.0)	(29.1)
n.m.	n.m.	55.8	57.2	53.3	46.9	38.8
2019A	2020A	2021A	2022E	2023E	2024E	2025E
18.7%	29.1%	34.0%	29.9%	30.8%	31.4%	32.0%
13.9%	22.5%	27.5%	22.9%	24.0%	24.7%	25.2%
-36.8%	-1.2%	-51.3%	-39.8%	-44.1%	-51.6%	-58.9%
-9.7%	0.8%	6.4%	-0.2%	-0.3%	-0.4%	-0.6%
-75.9%	-2.2%	-127.4%	-102.4%	-105.5%	-123.4%	-147.4%
57.0%	43.0%	66.7%	49.6%	58.1%	68.0%	76.6%
27.6%	32.2%	23.8%	22.6%	23.1%	23.4%	22.5%
1.68x	2.50x	1.99x	1.59x	1.25x	1.03x	0.90x
8.97x	8.59x	5.86x	5.33x	4.04x	3.28x	2.83x
19.18x	17.79x	12.04x	11.19x	8.89x	7.12x	6.10x
n.m.	0.02x	0.09x	0.10x	0.16x	0.21x	0.23x
2019A	2020A	2021A	2022E	2023E	2024E	2025E
n.a.	-32.7%	25.3%	25.2%	27.7%	20.9%	14.0%
n.a.	4.4%	46.5%	9.9%	32.0%	23.2%	15.9%
n.a.	8.8%	52.9%	4.5%	33.6%	24.5%	16.5%
n.a.	7.8%	47.8%	7.6%	25.9%	24.7%	16.7%

Source: Company data, KT&Partners' elaboration

April 7, 2022 ●2

Take Off S.p.A.

Price: €4.35| Fair Value: €8.37

Key charts

Total Revenues and Opening Shop (€mn, #)

Profitability Evolution (€mn, %)

Source: Company data, KT&Partners' elaboration

Source: Company data, KT&Partners' elaboration

Take Off Total Revenues and Opening Shop (€mn, #)

OverKids Total Revenues and Opening Shop (€mn, #)

Source: Company data, KT&Partners' elaboration

Source: Company data, KT&Partners' elaboration

Trade Working Capital (€mn, %)

NFP and Change in Total Shareholders' Equity (€mn, x)

Source: Company data, KT&Partners' elaboration

Source: Company data, KT&Partners' elaboration

April 7, 2022 ●3

Take Off S.p.A.

Price: €4.35| Fair Value: €8.37

Overview

Company description

The Group is active in the Italian retail fashion market - through a network of 144 stores - offering families a complete product portfolio from adult off-price apparel - through its brand Take Off - to childrenswear - through its proprietary brand OverKids. As for Take Off, the Group has developed an innovative business model based on: i) a balanced mix of proprietary and third-party brands; ii) a network of 31 fashion outlet boutiques (of which 27 are directly operated) and stock reshuffling among stores to reduce unsold products to almost zero; and iii) an innovative discount pricing system based on the "divided by" paradigm (from ÷2 to ÷10). OverKids' network covers most of the Italian territory through 113 affiliated stores, offering full-price products. The Group is now planning to expand its retail network both by entering new Italian regions and increasing penetration in already covered markets.

TKO-IT went listed on Euronext Growth Milan (EGM) on November 23rd, 2021, with an IPO market capitalization of €67.7mn and ca. €11.2mn of capital raised (adjusted for IPO's costs).

The Management announced that IPO proceeds would be employed to speed up the retail network development by opening ca. 40 Take Off's stores within 2024 - ca. 70% as DOS - and ca. 90 Over's TPOS. Take Off is also considering accelerating its development by acquiring already existing small non-performing retail networks and convert them into Take Off stores.

The network development is expected to boost the Group's revenues, profitability, and awareness.

Investment case

• • Take Off's innovative business model based on fashion outlet boutiques. Take Off has developed an innovative business model introducing the fashion outlet boutiques, offering a high-level customer experience within refined stores with personal sales assistance and innovative discount pricing system, capturing a wide customer base.

• • An extended and capillary retail network with high profitability and low risk. The Group leverages on one of the largest retail networks operating through 144 stores, covering most of the Italian regions through Over's network and with a capillary presence in the center-southern regions with Take Off's network. Furthermore, the Group - according to the management - bears low financial risk associated with network development as: i) investments needed to open new Take Off stores are limited to €300k of inventory

  (lower for OverKids) and €150k of set-up costs (and ca. €5-20k for TPOS); ii) costs for the eventual closure of non-performing stores are limited to ca. €100k for DOS - including both non-recoverable set-up investments and closure costs - and basically zero for TPOS.

• • High profitability granted by stock rotations through the network. Take Off's model is a clear example of circular economy, as the retail network allows efficient stock management. Indeed, unsold products from each season (11% on average) are reshuffled to other stores to maximize profits and mean inventory destruction or depreciation is near to zero. As result, the Company reported FY21 EBITDA margin of 36.1% (calculated on sales revenues), i.e., a FY21E EBITDA of €9.5mn (+46.4% YoY).

• • Positioned on strongly resilient markets. The Group operates in two segments - the off-price fashion market for adults and the childrenswear market - which have proved to be strongly resilient during market downturns.

Recent developments

• • Warrant Take Off 2022-2024. the Group will assign warrants with a ratio of 1 warrant for each share (for a total of 15,620,000 warrants) to each shareholder at FY21 Financial

  Statement approval by the shareholders' meeting. The warrant could be converted into new shares (exercise period in November of each year between 2022-24) with a ratio of four warrants per share at a strike price of: i) +30% on IPO price in the first window; ii) in the second window at a strike price of +15% with respect to first window strike price; iii) in the third window at a strike price of +15% on the second window strike price.

April 7, 2022 ●4

Take Off S.p.A.

Price: €4.35| Fair Value: €8.37

FY21 Financial Results

Take Off's key financials for FY21A are:

• • Sales revenues at €26.4mn vs €21.2mn in FY20A (+24.6% YoY), -7% below our

  expectations (made in November 2021) and in line with preliminary results;

• • Gross profit increased by +28.7% YoY to €15.9mn, in line with our FY21 projections made

  before TKO-IT preliminary results announcement, with Gross margin at 56.9% (+2pp YoY);

• • EBITDA grew by +46.5% YoY to €9.5mn (almost 9% higher than our estimates made in November 2021), with EBITDA margin at 34% (or 36.1% on sales revenues);

• • Net income soared to €5.6mn (+47.8% YoY), almost +14% above our expectations (made before TKO-IT preliminary results);

• • Net cash position at €12mn, +€12mn compared to FY20A.

• • TKO-IT's BoD proposed a €0.18 dividend per share to the Shareholders' Meeting, implying a dividend yield of ca. 4.67%.

FY21A Sales revenues increased by +24.6% YoY to €26.4mn (vs €21.2mn in FY20A) thanks to gradual easing of restrictions related to the COVID-19 pandemic. Take Off BU sales revenues grew by 37.5% YoY, leading group growth, while OverKids reported revenues slightly below FY20 (-3.1% YoY). It is worth noting that, when compared to 2019, the lower level of Take Off BU sales is mainly associated to the lower opening days (316 in 2021 vs 362 in 2019), indeed average daily revenues increased by 14.7% YoY reaching €63K in line with 2019 results. Total revenues reached €28mn in FY21 (+24.6% YoY), of which €21.4mn (+38% YoY) attributable to

Take Off and €6.6mn (-3.4% YoY) to OverKids.

Despite the COVID-19 outbreak the Group shown strong resilience and ability to strengthen profitability through inventory stock rotation, cost-saving activities, and an average selling price improvement across all business units (+12.7% and +18.4% compared to 2019 for Take Off and OverKids, respectively). As result, TKO-IT achieved €15.9mn of gross profit, +28.7% higher than FY20. Furthermore, thanks to lower-than-expected cost of service and other operating expenses incidence, EBITDA FY21 jumped to €9.5mn from €6.5mn, achieving an outstanding EBITDA margin of 34% (+4.9pp YoY) and almost +4pp when compared to our projections (made before preliminary results).

Looking at the bottom line, the Group showed a remarkable increase in FY21A net margin of +3.1pp compared to the previous year, with Net Income amounting to €5.6mn (+47.8% YoY).

In 2021 fixed assets decreased by ca. €1.8mn, amounting to €8.5mn in FY21A while Net working capital (NWC) increased by €1.9mn reaching €4mn in 2021. Trade Working Capital incidence on revenue went from 20% in 2020 to 15% in 2021, also thanks to the lower restrictions at the end of 2021 when compared to the end of 2020.

Over the same period, the NFP improved by €12mn, amounting to a net cash position of €12.1mn in FY21A from €0.1mn of net cash in FY20A. The change in NFP was mainly due to: i) €11.2mn of IPO AUCAP (adjusted for IPO's costs); ii) a strong cash generation resulting in

€6.3mn of operating cash flow (OCF/EBITDA of 67% vs 31% in 2020) and FCF/EBITDA of 54% (vs 18% in 2020); iii) €6.8mn dividends payments; iv) €1.9mn NWC cash absorption caused by increasing other assets; and v) €1.3mn mainly attributable to new leasing contracts (ROU IFRS 16).

Last but not least, BoD proposed a dividend payment of ca. €2.8mn or €0.18 per share, implying a dividend yield of ca. 4.1% and a payout ratio of 72.3% (or 49.9% based on group net income). The first available record date is scheduled on May 3, 2022.

April 7, 2022 ●5