Kogan.com Limited

KGN Details
 
Record Results Reported in 1HFY20:Kogan.com Limited (ASX: KGN) operates a portfolio of retail and services businesses including Kogan Retail, Kogan Marketplace, Kogan Internet, Kogan Insurance, Kogan Mobile, etc.

The company recently provided a business update for the half-year ended 31 December 2019. Kogan.com recorded the highest gross sales and gross profit in its history along with the highest ever Black Friday and Boxing Day sales. The company reported a strong growth trajectory across Kogan Marketplace. The business also benefitted from the recently launched Kogan First, Kogan Credit Cards and Kogan Energy.

Gross sales for the period reported an increase of over 16% on the prior corresponding half. Gross profit increased by more than 9%.The company reported a marginal decline in operating costs, including marketing costs, people costs, variable costs and other costs. As at 31 December 2019, the company had 1,699,000 active customers on its platform which increased by more than 10% on the prior corresponding period. Active customers for Kogan Internet alone grew by more than 340%. At the end of the period, the company had a cash balance of $34.1 million and an undrawn debt facility of $30 million. During the period, the company invested significantly in Kogan First, offering free shipping, free upgrades to express shipping and exclusive discounts to Kogan First members. The investment program has delivered more than $1 million of additional benefits to the company.


Growth in Kogan First (Source: Company Reports)

Outlook: The company has invested in several growth projects including, Kogan Marketplace, Kogan Credit Cards, Kogan Energy and Kogan First, which gave a remarkable response during the first half of FY20 and are expected to drive growth over the coming years.The company is thriving hard to build strong customer relationships across the divisions and drive loyalty for a longer-term. Kogan.com also plans to introduce new sellers to the Kogan Marketplace to build a major e-commerce marketplace in Australia & New Zealand and reduce dependency on inventory.

Valuation Methodology: EV/Sales Multiple Approach

EV/Sales Based Valuation (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of the company generated returns of 51.24% over a period of 6 months. Currently, the stock is trading above the average of its 52-week high and low of $8.080 and $3.020, respectively.During 2QFY20, gross sales of the company grew by more than 44% on the previous quarter. This was possibly a result of major investments in warehousing and infrastructure for faster delivery, Kogan First to reward loyal customers, and to drive product variety in Kogan Marketplace. The above investments are expected to deliver several benefits for the years to come. We have valued the stock using EV/Sales based relative valuation method and arrived at a target price of higher single-digit upside in % terms. Hence, we give a “Hold” recommendation on the stock at the current market price of $6.180, down 22.166% on 20^th January 2020, on account of the release of the business update.

 
KGN Daily Price Chart (Source: Thomson Reuters)
 

Super Retail Group Limited

SUL Details

First-Half Sales Rise Despite Challenges:Super Retail Group Limited (ASX: SUL) is engaged in the retail of auto parts and accessories, sporting equipment and apparel, boating and fishing equipment, etc.

During the 26 weeks ended 28 December 2019, the company reported total sales growth of 3.8%, 3.6% and 0.8%, across its Supercheap Auto, Rebel and BCF businesses, respectively. Sales for Macpac declined by 1% on the prior corresponding period. Group sales witnessed a rise of 2.9%, despite the impact of disastrous bushfires and drought. The peak trade season started with remarkable year-on-year trading across the Black Friday and Cyber Monday online events. However, the December trading session witnessed a setback due to challenges from bushfires and sustained drought conditions. The highest impact was seen on BCF and Macpac, as the businesses are highly exposed to outdoor activities.

The company also provided the provisional results for the period, which are subject to external audit review. Total group revenue for the period is expected to be $1,444 million. Provisional EBIT for the half is expected to be in the range of $113 million - $115 million. The following table provides a brand-wise break-up of the first half results, which are expected to be released on 20^th February 2020.


1HFY20 Provisional Results (Source: Company Reports)

What to Expect:Some of the positives that signal better outcomes for the second half include, a solid performance by Supercheap Auto and Rebel despite a challenging environment, impressive gross margin momentum in Supercheap Auto in Q2FY20, stabilisation of gross margin across BCF, online sales growth of 22%, a y-o-y decrease in supply chain costs per unit, etc. While in the first half, Macpac’s gross margin was impacted by a delay in price increases for the peak winter promotion period, its gross margin and EBIT for the second half are expected to be higher than the prior corresponding period.

Valuation Methodology: Price to Earnings Multiple Approach

Price to Earnings Based Valuation (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of the company generated a return of 47.88% in the last one year. Currently, the stock is approaching its 52-week high of $10.540. Considering the growth in sales despite major challenges, positives described in the above section, decent outlook for the second half, and current trading levels, we have valued the stock using Price to Earnings based relative valuation method and for the purpose, have taken the peer group - JB Hi-Fi Ltd (ASX: JBH), Harvey Norman Holdings Ltd (ASX: HVN) and Metcash Ltd (ASX: MTS) and arrived at a target price of higher-single digit upside (in % terms). Hence, we give a “Hold” rating on the stock at the current market price of $9.580, down 1.844% on 20^th January 2020.

 
SUL Daily Price Chart (Source: Thomson Reuters)

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