4 Consumer Discretionary Stocks – KMD, AX1, KGN and RFG

KATHMANDU HOLDINGS LIMITED (ASX: KMD)

KMD Details

Released first half results for 2018: The securities of outdoor and camping retailer, Kathmandu Holdings Limited were placed in a Trading Halt Session State and will be in Trading Halt Session State until the commencement of normal trading on 22 March or when the announcement is released to the market. Ordinary shares up to 4,629,630 were issued under a share purchase plan at a consideration of NZ$2.16 per share. It complied with the continuous disclosure obligations that apply to it in relation to ordinary shares in Kathmandu and as per its financial reporting obligations. The Placement will not have any material effect on the control of Kathmandu. KMD also entered into an unconditional binding agreement and acquired US-based Oboz Footwear LLC for a base consideration of US$60 million. This transaction will be done through $40 million of underwritten institutional placement (via issue of ~18.5m of new shares) and up to $10 million will be raised via a non-underwritten share purchase plan and balance will be funded from a new acquisition debt facility. This will accrue a mid-single digit EPS growth in FY19. Oboz will increase the credibility of Kathmandu’s international offer particularly for under-developed markets including Europe and Asia. It will improve Kathmandu’s financial profile which will be driven by incremental sales and earnings growth, while the group maintains a prudent capital structure.
 

Sales Growth Trend (Source: Company Reports)
 
The Group released its first half yearly profits and reported an increase of NZ$2.3 million in net profit after tax, amounting to NZ$12.3 million as compared to prior corresponding period. EBIT increased from NZ$14.8 million to NZ$18.0 million for the same period. Sales grew by 3.7 per cent in Australia while New Zealand first quarter sales were impacted by lower levels of clearance stock. Gross margin increased by 1.7 per cent as compared to the same period in prior year. Board declared an interim dividend of NZ$4.0 cents per share which will be paid on 8 June 2018 and will be fully franked for Australian shareholders and will not be imputed for New Zealand shareholders. It is focussed on delivering a profit growth in its core business in the second half that started well with group sales up 7.4% in the first six weeks and gross margins up 460 basis points in the month of February. It will be prudent to watch the share price movement once the securities are out of trading halt.
 

KMD Daily Chart (Source: Thomson Reuters)
 

ACCENT GROUP LIMITED (ASX: AX1)

AX1 Details

Delivered Sustainable sales across its business: Recently, the group announced that Hilton Brett changed his interest as at 6 March 2018. Earlier, he was holding 5,871,526 Performance Rights and 3,825,972 fully paid ordinary shares and now he is holding 3,825,972 of fully paid ordinary shares only. Meanwhile, group’s total sales for the first half FY18 amounted to $350.3 millionand were up by 17 per cent on an underlying basis as compared to the same period in the prior year and underlying EBITDA was up by 16.5 per cent and amounted to $50.0 million. There were no changes in the dividends and the group declared a fully franked interim dividend of 3.0 cents per share and this will be paid on 22 March 2018. AX1 had a good start to 2018 and reported 4% growth in like for like sales for first seven weeks of second half as well.
 

Distribution Agreement Trend (Source: Company Reports)
 
The Group expects that its dividend pay-out ratio will be between 75-80% of the underlying earnings per share. Wholesale sales were in line with the expectations and the Group continues to drive the growth of its exclusive brands through its vertical channels and key retail partners. There were some key changes in the Board like Ivan Hammerschlag, the chairman retired, and Stephen Goddard was appointed in place of him. The stock prices were up by 65.75 per cent in the past six months and by 6.14 per cent in the past one week. We give a “Hold” recommendation at the current market price of $1.235
 

AX1 Daily Chart (Source: Thomson Reuters)
 

KOGAN.COM LTD (ASX: KGN)

 

KGN Details

Outperformed in all key financial metrics: The Group issued 7,407 fully paid ordinary shares on March 08, 2018 which was due to the vesting of 7,407 of Performance rights. The Company applied for the quotation of the shares on the ASX and complied to the provisions of Chapter 2M and section 674 of the Corporations Act. On the other hand, KGN reported a trading EBITDA of $14.1 million for 1HFY18 which exceeded 1HFY17 Pro Forma EBITDA by 93.2 per cent. At the end of December 17, the business achieved a growth of 40.5 per cent in its Active Customers. NPAT increased by 118.9 per cent as compared to same period in the prior year. Kogan Mobile achieved a significant growth in the first half which was due to strong commercial relationship with Vodafone and it contributed in the overall growth of the Company.
 
 
Financial Performance (Source: Company Reports)
 
The stock price was up by 155 per cent in the past six months but fell by 4.9% on March 20, 2018, so we give a “Hold” recommendation at the current market price $9.32
 

KGN Daily Chart (Source: Thomson Reuters)
 
 

RETAIL FOOD GROUP LIMITED (ASX: RFG)

RFG Details
 
Rise in stock price: Up 6.6% on March 20, 2018, Retail Food Group seems to be reversing the losses made in the past (76% in last six months). Recently, UBS Group AG and its related bodies corporate became substantial holder of the group with 5.06% voting power, just few days after ceasing to be the substantial holder. RFG has also been under the clouds of a possible class action over its franchisee model often termed as “a brutal business model” by the media. While RFG says to have no evidence of franchisees underpaying the staff, Maurice Blackburn Lawyers have set-up a registration portal for the shareholders to be a part of the class action against the group. Primarily, the group’s financial performance entailing losses (a net loss after tax of $87.8 million for the first half of FY18 owing to difficult trading conditions) and issues with franchisees have been sending the stock down. While the stock is targeted to be one of the top short selling stocks now, we give a “Hold” at the current price of $1.12
 

RFG Daily Chart (Source: Thomson Reuters)

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