Baby Bunting Group Limited

Decent Top-line and Bottom-line performance in 1HFY19: Baby Bunting Group Limited (ASX: BBN) operates Baby Bunting retail stores and its online store babybunting.com.au. The company recently updated a change in the substantial shareholding of IOOF Holdings Limited wherein the voting power of the shareholder was increased from 7.847% to 9.041%, effective from June 25, 2019. On the financial front,the company generated sales amounting to $177.7 million in 1HFY19, up 17.2% on the previous corresponding period. Comparable store sales in H1FY19 witnessed a rise of 9.5%. The company’s online sales, accounted for 11.5% of the total sales, reported a rise of 61% on the prior corresponding period. The period saw the opening of 5 new stores with 1 more store in the pipeline for FY19. During the period, the company reported 62% growth in sales of private label and exclusive products as compared to the previous corresponding period.

Pro-forma EBITDA for the period amounted to $11.6 million, up 25% on the previous corresponding period. EBITDA margin for the period was reported at 6.5% of sales. The net profit after tax amounted to $6 million, up 25.3% on the previous corresponding period. The Board declared a fully franked dividend of 3.3 cents per share which was paid in March 2019.


H1FY19 P&L Statement (Source: Company Reports)

What to expect: The company expects FY19 EBITDA to be in the range of $25 million to $27 million, with EBITDA growth in the range of 34% to 45%. EBITDA guidance was provided after excluding employee equity incentive expenses. The company expects a full year gross margin of ~35% and a total of 6 new store openings by the end of FY19. It is also expecting a comparable store sales growth of mid to high single digits.

Stock Recommendation: The stock of the company generated a positive six months return of 3.81%. The stock is presently trading at PE multiple of 26.590x with an annual dividend yield of 2.66%. Its gross margin for H1FY19 stood at 34.6%, which is better than the industry median of 23.3%. Its current ratio for H1FY19 stood at 1.73x, better than the industry median of 1.57x, which implies that the company is in a better position to address its short-term obligations. Moreover, the company has provided an FY19 EBITDA guidance of $25 million - $27 million, which is much higher than FY18 EBITDA of $18.62 million. Hence, considering the above-stated factors and looking at the current trading level, we recommend a “Speculative Buy” rating to the stock at a current market price of $2.230, up 2.294% on July 8, 2019.

Kogan.com Limited

Active customers increased in March ’19 Quarter on pcp: Kogan.com Limited (ASX: KGN) operates in the retail sector through its businesses namely Kogan Retail, Kogan Marketplace, Kogan Mobile, Kogan Internet, Kogan Insurance and Kogan Travel. The company has recently signed an agreement with Splitit Payments Ltd (ASX: SPT) wherein it will provide Splitit’s unique instalment payment solution for online purchases in Australia through Kogan.com website. The company recently announced that it has entered into an agreement with Meridian Energy’s Australian subsidiary, Powershop Australia for offering its power and gas services to Australian households under the brand name Kogan Energy. The brand is expected to launch before the end of the calendar year 2019.

March ’19 Quarter Key Highlights: During the period, the company reported strong earnings growth. It had 1,589,000 active customers as on March 31, 2019, as compared to 1,288,000 customers as on March 31, 2018. Active customer for Kogan Mobile grew by 40.6% year-on-year, as on March 31, 2019. Active customers for Kogan Internet grew by 78.7% Quarter-on-Quarter, as on March 31, 2019. Gross Transaction Value for the period increased by 17.5% as compared to the previous corresponding period. Revenue during the quarter increased by 9.5% as compared to the previous corresponding period. EBITDA reported a remarkable growth of 96.4% as compared to the previous corresponding period.
During the half year ended on December 31, 2018, the company witnessed decent year-on-year growth in exclusive brands revenue at 26.1% as compared to the previous corresponding period.


H1FY19 P&L Statement (Source: Company Reports)

What to expect: In the second half of the year, the company expects continued brand growth, deeper market penetration in existing portfolio businesses along with the launch of new portfolio businesses. In addition, the company is also expected to launch new verticals and report further growth in active customer base.

Stock Recommendation: The stock of the company generated positive YTD return of 42.69%.  Currently, the stock is trading slightly above the average of 52 weeks high and low levels of $5.065 with PE multiple of 35.320x and an annual dividend yield of 2.45%. The company reported a strong performance in the March ’19 quarter with active customers growing across all the business verticals. As per H1FY19 results, the company has significant plans in pipeline including the launch of new portfolio businesses and addition of new verticals. In addition, the company has also entered into agreements with Splitit and Powershop Australia, which are expected to provide impetus to its business unit to deliver sustainable value for its shareholders. Hence, considering the above factors, we recommend a “Speculative Buy” rating on the stock at the current market price of $5.150 (up 3.414% on July 8, 2019).

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