Cash Converters International Limited

Focus on Increasing Online and Physical Presence: Cash Converters International Limited (ASX: CCV) operates as a franchisor of second-hand goods and financial services stores in Australia. The company also provides secured and unsecured loans to customers. The company’s stores operate under the name, Cash Converters. On 21 October 2019, CCV released an announcement on the settlement of class action by Sean Lynch against subsidiaries of Cash Converters. Under the Lynch Settlement, Cash Converters will pay an amount of $42.5 million in two tranches.

FY19 Highlights for the period ended 30 June 2019: CCV declared its FY19 results wherein, the company reported revenue of $281.565 million, up 8.2% y-o-y and posted a net loss after tax at $1.692 million as compared to $22.503 million in prior financial year. CCV reported a gross loan book at $220.490 million, representing an increase of 27.9% on y-o-y basis, aided by strong growth across vehicle financing business, Green Light Auto (GLA), which increased by 70% y-o-y. The company witnessed higher volumes in online lending segment with 40.0% y-o-y growth in Medium Amount Credit Contract (MACC). In FY19, the small amount credit contract (SACC) loan book denoted only 43.4% of the total loan receivables of the business, down in comparison to 49.7% in previous financial year.


FY19 Financial Highlights (Source: Company Reports)

Outlook: Going forward, the company will focus on increasing its presence across online and physical stores. The addressable market for secured auto financing also remains solid for the Green Light Auto brand to build its standing and become a larger participant in the sector.

Stock Recommendation: The stock of CCV is trading at $0.195 with a market capitalization of ~$92.47 million. 52-week trading range of the stock stands at $0.120 to $0.310. The stock has delivered returns of 3.45% and -45.45% during the last six-months and one year, respectively. CCV has established itself as a market leader in second-hand goods retailing, pawnbroking and short-term unsecured lending in Australia, and is working towards enhancing both physical store presence, and online capabilities. In FY19, the company had a gross margin of 55.6%, which is higher than the industry median of 24.2%. EBITDA margin for the year stood 13.8%, higher than the industry median of 6.9%. Looking at the aforesaid facts and current trading levels, we recommend a ‘Hold’ rating on the stock at the current market price $0.195, up 30% on 21 October 2019, as a result of announcement pertaining to the settlement of class action.
 

Kathmandu Holdings Limited

Acquisition of Rip Curl to Enhance Global Footprint: Kathmandu Holdings Limited (ASX: KMD) is a manufacturer, distributor and retailer of clothing, footwear, and equipment for travel and adventure. Recently, KMD announced that it has entered into a binding agreement to acquire a 100% stake in Rip Curl at an enterprise value of AUD$350 million on a debt free, cash free basis. The price of the acquisition denotes a 7.3x enterprise value to FY19 pro forma normalised EBITDA. As per the announcement, the above acquisition will be fully funded through a combination of debt and equity.

FY19 Operational Performance for the year ending 30 June 2019: Kathmandu Holdings Limited announced its full-year results for FY19 wherein the company reported sales of NZ$545.6 million, up 9.7% on FY18. Growth in sales was driven by added revenue from Oboz. In FY19, sales growth for Oboz was reported at 30%.KMD reported NPAT at NZ$57.6 million as compared to NZ$50.7 million in the previous financial year. The business reported online sales of NZ$48.4 million, which now represents 10.1% of direct to consumer sales. EBITDA during FY19 stood at NZ$99.6 million, representing an increase of 10.9% on y-o-y basis. During the year, the business reported the introduction of 4 new stores and 12 refurbishments with an investment of NZ$10.3 million.


FY19 Financial Highlights (Source: Company Reports)

Capex Guidance: FY20 capital investment for new stores, store refurbishment programme and systems capability, is estimated to be c.NZ$21 million.

Stock Recommendation: The stock of the company is trading at $2.980 with a market capitalization of ~$791.65 million. 52-week trading range of the stock stood at $1.896 to $3.00. Currently, the stock is trading at the upper band of the range. The stock has generated returns of 44.05% and 36.23% during the last three-months and six-months, respectively. The company has reported a strong start to FY20 with group same store sales growth of 6.1% for the first 7 weeks ending 15 September 2019. The acquisition of Rip Curl is expected to considerably diversify Kathmandu’s geographical footprint. Moreover, the combination of the two brands is likely to create a global outdoor and action sports company worth NZ$1 billion. Considering the aforesaid facts and current trading levels, we recommend a ‘Hold’ rating on the stock at the current market price of $2.980, up 2.055% as on 21 October 2019.

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