Kogan.Com Ltd 

KGN Details

Demurrage Issue Resolved: Kogan.com Ltd (ASX: KGN) operates a portfolio of retail and service businesses. The company earns seller-fee based revenue from Kogan Marketplace and commission-based revenue from the New Verticals, including Kogan Mobile, Kogan Insurance, Kogan Cars, Kogan Energy, etc. The company faced a demurrage issue due to a significant rise in inventory on consumer demand during April 2021. The company has now resolved the demurrage issue and does not expect any such situation to arise in future. 

Change in Director’s Interest: KGN has informed the markets regarding a change in the director’s interest. As a result, the director, Janine Allis has acquired 4,761 ordinary shares in the company at $10.50 per share.  

1HFY21 Financial Highlights: 

• Robust Revenue – KGN has reported a significant increase in revenue in 1HFY21 against 1HFY20, mainly driven by its product divisions and Kogan Marketplace.
• Increased Profitability – The company has improved on its profitability in 1HFY21 against 1HFY20 backed by an increase in active customers.
• Decent Liquidity Position – KGN has reported a healthy cash balance of $78.95mn as of 31 December 2020. Total debt of the company stands stood at $13.48mn as of 31 December 2020. Therefore, the net cash position of the company stands at $65.47mn at the end of 1HFY21.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: 

• Forex Headwinds: The company deals with foreign currency. Therefore, any adverse foreign exchange prices may impact the financials.
• Fluctuation in Interest Rate: The company holds interest-bearing liabilities. Therefore, any severe change in interest rates may impact the financials of the company. 
  

Outlook:  The company expects EBITDA in a range of $58-$63mn for FY21 as compared with $46.5mn in FY20. Moreover, KGN has a robust level of inventory to meet the demand heading into the 1HFY22. The company is likely to remain focused on continuous customer experience improvements in FY22. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Source: Analysis by Kalkine Group  

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of KGN gave a return of ~-43.38% in the last six months and a return of ~-49.11% in the last nine months. The current market capitalisation of KGN stands at ~$1.23bn as of 9 July 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$8.70-~$25.57. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms) upside. We believe that the company can trade at a slight discount as compared to its peer average, considering a cost price inflation of many consumer products, lower gross margins in near term, high inventory cost, declining cash balance and an increase in total liabilities as on 31 December 2020. For this purpose, we have taken peers Booktopia Group Ltd (ASX: BKG), Redbubble Ltd (ASX: RBL), Temple & Webster Group Ltd (ASX: TPW). Considering an increase in revenue and profit in 1HFY21, maintaining inventory to meet higher demand, current trading levels, valuation, and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of $11.21, as on July 9, 2021, 10.51 AM (GMT+10), Sydney, Eastern Australia).

KGN Daily Technical Chart, Data Source: REFINITIV

Tassal Group Limited  

TGR Details

 Tassal Group Limited (ASX: TGR) is engaged in farming Atlantic salmon and tiger prawns and the processing and marketing of salmon, prawns, and other seafood.

Farm Acquisition to Boost Production: 

• On 12 May 2021, TGR announced the acquisition of Mid Farm in the vicinity of its Proserpine Prawn farm and Billy Creek property. 
• TGR is likely to integrate its farm holdings to boost the production of prawns in the area and may witness operational efficiencies.
• In addition, the company has sold its surplus land at Exmoor station and retains the productive land parcels for farming development in the future.
  

Notification about Substantial Holder: On 14 April 2021, TGR announced that Yarra Capital Management Limited, became a substantial holder in the company, with 9.65% of voting power. 

1HFY21 Financial Highlights: 

• Increase in Revenue – The company has registered an increase in revenue during 1HFY21 against 1HFY20, on the back of domestic consumption growth.
• Decline in Profit – TGR has registered a decline in profit in 1HFY21 against 1HFY20 mainly due to pricing impact on Salmon exports. In addition, the company has witnessed negative global pricing during the 1HFY21, due to Covid-19 impacts and appreciation in AUD/USD ratio.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: 

• Supply Chain Disruptions: The company requires to supply its products to distributors and retailers regularly. Therefore, supply chain disruptions may impact the business severely.
• Covid-19 Uncertainties The company is exposed to Covid-19 impacts. Therefore, any such situation may impact on short term pricing of the products. 
  

Outlook: TGR expects a higher production for prawns in a range of 4,500-5,000 tonnes backed by an additional infrastructure at Proserpine in FY21. The company aims at harvesting 20k tonnes of prawns by 2030.

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Source: Analysis by Kalkine Group  

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of TGR gave a return of ~-5.76% in the last one month and a return of ~-11.13% in the last three months. The current market capitalisation of TGR stands at ~$732.58mn as of 9 July 2021. The stock is currently trading slightly below the average 52-weeks’ price level range of ~$3.16-~$3.97. On the technical analysis front, the stock has a support level of ~$3.33 and a resistance of ~$3.65. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms) upside. We believe that the company can trade at a slight discount as compared to its peer average, considering a risk of water temperatures in summer and autumn for Salmon growth, declining profits, and an increase in non-current borrowings as on 31 December 2020. For this purpose, we have taken peers Beston Global Food Company Ltd (ASX: BFC), Huon Aquaculture Group Ltd (ASX: HUO), Clean Seas Seafood Ltd (ASX: CSS) to name a few. Considering an increase in revenue in 1HFY21, an increase in cash balance as on 31 December 2020, current trading levels, farm acquisition to boost production, and valuation, we recommend a “Hold” rating on the stock at the current market price of $3.43, down by ~0.580%, as on Jul 9, 2021.

TGR Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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