Kathmandu Holdings Limited
KMD Details
Robust Performance by Rip Curl: Kathmandu Holdings Limited (ASX: KMD) is engaged in designing, marketing, and retailing of clothing and equipment for travel and adventure. The company's segments include New Zealand, Australia, and the United Kingdom. Acquisition of Rip Curl proved to be a significant contributor towards KMD’s enhanced revenue and profits since it has been acquired. During the 1HFY21, Rip Curl has contributed NZ$251.1mn in sales out of total sales of NZ$410.71mn in 1HFY21. Rip Curl has contributed NZ$44.0mn in EBIT, out of total EBIT of NZ$39.2mn in the same period despite the challenges from Covid-19.
Confirmation on Retirement of the Director: Mr. Xavier Simonet is ceased to be a director for KMD with effect from 30 April 2021. Before the appointment of new CEO, Mr. David Kirk, Chairman is likely to oversee the executive team handled by Mr. Simonet.
1HFY21 Financial Highlights: The company has registered an increase in sales revenue to NZ$410.71mn in 1HFY21 against NZ$363.65mn in 1HFY20, mainly on the back of strong performance by Rip Curl. KMD has registered an increase in its bottom line to NZ$22.27mn in 1HFY21 against NZ$7.57mn in 1HFY20 on the back of profits from Rip Curl. The company has seen an improvement in its liquidity position to NZ$228.47mn as on 31 January 2021 against NZ$40.25mn as on 31 January 2020. The company has declared an interim dividend of NZ 2.0 cents per share for its shareholders.
Financial Performance (Source: Company Reports)
Key Risks: The company is exposed to liquidity risk. The company operates in multiple countries. Any severe movement in foreign exchange prices may lead to forex losses for the company.
Outlook: KMD remains optimistic on robust performance in the winter season in Australasia in 2HFY21 post lifting of trade restrictions. Rip Curl will be implementing a loyalty program for its customers to boost sales and Oboz is coming up with a direct-to-consumer online store in 2HFY21.
Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)
Data Source: Refinitiv, Thomson Reuters, 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 KMD gave a return of ~13.79% in the last one month and a return of ~23.23% in the last three months. The current market capitalisation of KMD stands at ~$1.00bn as of 17 May 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$0.895-~$1.490. On the technical analysis front, the stock has a support level of ~$1.353 and a resistance of ~$1.682. We have valued the stock using an EV/Sales Value multiple-based illustrative relative valuation method and arrived at a target price of high single-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering an increase in sales revenue in 1HFY21 and a robust performance by its brand, “Rip Curl”. For this purpose, we have taken peers Accent Group Ltd (ASX: AX1), Lovisa Holdings Ltd (ASX: LOV), Shaver Shop Group Ltd (ASX: SSG), to name a few. Considering an increase in NPAT in 1HFY21, an improvement in liquidity position, robust performance by Rip Curl, current trading levels, and valuation, we recommend a “Hold” rating on the stock at the current market price of $1.485, up by ~4.577% as on 17 May 2021.
KMD Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
Mosaic Brands Limited
MOZ Details
Update on 3QFY21 Cash Flows: Mosaic Brands Limited (ASX: MOZ) is engaged in retailing of women's apparel and accessories in Australia. MOZ has reported a cash balance of $48.6mn in Q3FY21, an increase of $22.4mn over Q3FY20. MOZ has reported $45mn of cash outflow from operating activities in Q3FY21 as part of its working capital. Nevertheless, the company’s cash inflow from operating activities improved by $17.5mn to $76mn on a year-to-date basis. The company has seen a reduction in its finance facilities to $51.5mn (YTD) at the end of Q3FY21 against $76mn (YTD) at the end of Q3FY20.
1HFY21 Financial Highlights: The company has registered a decline in its revenue to $344.01mn in 1HFY21 against $425.16mn in 1HFY20. Despite a decline in revenue, MOZ has reported an increase in its bottom line to $13.00mn in 1HFY21 against $12.24mn in 1HFY20. The company has seen an improvement in its liquidity position with cash reported to $118.93 as on 27 December 2020 against $86.92mn as on 28 June 2020.
Liquidity Position (Source: Company Reports)
Key Risks: The company is mainly engaged in retail segment, any disruption in supply chain may lead to a decline in sales and may impact financial performance. MOZ expects an uncertain situation in 2HFY21 on the back of impacts from Covid-19.
Outlook: MOZ has experienced an uptick in trading activities nationally after the commencement of vaccination program for people above the age of 50. Furthermore, MOZ expects a recovery in its profitability by FY22 and beyond on the back of rollout of vaccination program.
Valuation Methodology: EV/EBITDA based Relative Valuation Method (Illustrative)
Data Source: Refinitiv, Thomson Reuters, 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 MOZ gave a return of ~-15.58% in the last one month and a return of ~-37.79% in the last three months. The current market capitalisation of MOZ stands at ~$61.86mn as of 17 May 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$0.455-~$1.190. On the technical analysis front, the stock has a support level of ~$0.459 and a resistance of ~$0.966. We have valued the stock using an EV/EBITDA Value multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount as compared to its peer median, considering a decline in revenue in 1HFY21 and a decline in total assets as on 27 December 2020 along with a volatile outlook volatile outlook for State-wide shutdowns until the vaccination program gets completed. For this purpose, we have taken peers Vita Group Ltd (ASX: VTG), Super Retail Group Ltd (ASX: SUL), Reject Shop Ltd (ASX: TRS). Considering an increase in the cash balance in 3QFY21, increase in profits despite a decline in revenue, associated business risks, and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.65, up by ~1.562% as on 17 May 2021.
MOZ Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
Note: 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.
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