Nick Scali Limited

Annual General Meeting to be held on 29 October 2019:Nick Scali Limited (ASX: NCK) is into the business of sourcing and retailing of household furniture and related accessories. The market capitalisation of the company stood at ~$601.83 million as on 2nd October 2019. The company has announced that the Annual General Meeting will be held on 29^th October 2019. The agenda of the Annual General Meeting will be remuneration report and re-election of Director John Ingram.

Financial Performance in FY19: For the seventh consecutive year, Nick Scali Limited reported a net profit after tax of $42.1 million up by 2.8% from the previous year.Sales revenue increased by ~7% to $268 million due to full year’s contribution from the stores opened during FY18 and varying contribution from the six stores opened during FY19. Gross margins improved by 20 bps to 62.9% due to new product initiatives which resulted in underlying margin improvement.


FY19 Financial Highlights (Source: Company Reports)
 
Store Growth: Six new Nick Scali Furniture stores were opened during FY19 including a second store in New Zealand. The company now has a total network of 57 stores comprising 55 in Australia and two in New Zealand. The company is planning to open four new stores in this financial year, of which two will be in Auckland, New Zealand. The company’s long-term store network target is 80-85 stores throughout Australia and New Zealand.
Outlook for FY20: With the store network continuing to grow, the company has demonstrated that it can deliver a decent profit performance in an environment of flat to negative same store sales growth.Despite the difficult trading conditions, the company is well-positioned with a strong balance sheet and solid cash flow. This will facilitate the continued growth of its store network and allow the company to explore other growth opportunities as they arise.

Stock Recommendation:On the stock performance front, it produced returns of 21.21% and 28.55% in the past three months and six months, respectively. The stock is presently trading close to its 52-week high of A$7.59. Therefore, considering the above-stated facts and current trading levels, we give an “Expensive” rating on the stock at the current market price of A$7.270 per share (down 2.153% on October 02, 2019). 
 

Kogan.com Limited

Decent Performance in FY19:Kogan.com Limited (ASX: KGN) is a portfolio of product and services businesses that includes Kogan Retail, Kogan Marketplace, Kogan Mobile, Kogan Internet, Kogan Insurance and Kogan Travel. Kogan.com earns most of its revenue and profits through the sale of goods and services to Australian consumers. The market capitalisation of the company stood at ~$589.12 million as on 2^nd October 2019. KGN announced its financial results for FY19 wherein the company posted an EBITDA of $26.0 million, up 15.6% y-o-y and NPAT of $17.2 million as compared to NPAT of $14.1 million, showing a decent rise of 21.9% on y-o-y basis. The company reported a revenue of $438.7 million in FY19, up by 6.4% on a y-o-y basis.


 Financial Performance (Source: Company Reports)

Key Drivers of Financial Performance in FY19: With respect to brand growth, it was mentioned that the business achieved growth in Active Customers in the last 12 months of 221,000 (15.9%). At 30 June 2019, the business had 1,609,000 active customers.ROI on marketing expenditure continues to improve following the implementation of a new proprietary marketing bidding system, which resulted in a year-on-year decline in marketing costs.

Coming to the portfolio businesses, Exclusive Brands continued to achieve significant year-on-year revenue growth with an increase of 41.6% on FY18.Exclusive Brands represented 49.7% of overall gross profit in FY19.

It was also mentioned that, in FY19, the company launched Kogan Marketplace, which has achieved $1.5 million in commission-based revenues, reflected as gross profit.The launch of Kogan Marketplace is proving to be a transformational step for the company. With regards to marketing and other income, the company has gained traction in assisting its partners to engage in paid marketing and promotion on the Kogan.com platform, demonstrating the potential of marketing promotions as a revenue stream.

Stock Recommendation: The stock has produced returns of 26.41% and 63.71% in the time frame of three months and six months, respectively. Currently, the stock is trading close to its 52-week high level of $6.930 with P/E multiple of 34.17x and an annual dividend yield of 2.28%. Hence, in view of aforesaid facts and current trading levels, we maintain our “Hold” recommendation on the stock at the current market price of A$6.320 per share (up 0.797% on 2^nd October 2019).

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