Wesfarmers Limited
WES Details
Change in Substantial Shareholding: Wesfarmers Limited (ASX: WES) is involved in the retail operations covering home improvement and office supplies, general merchandise, and specialty departments store, beauty, and wellbeing; chemicals, energy and fertilizers, and industrial and safety products. State Street Corporation and Subsidiaries ceased to be substantial shareholder from a voting power of ~5.02%, effective from 9 June 2022.
Business Updates (Source: Analysis by Kalkine Group)
Key Risks: The company’s operational and financial performance could be impacted by uncertainties in relation to the COVID-19 pandemic. In addition, the business could be affected by the loss of customers.
Outlook: Looking forward, with the recent strategy briefing released on 2nd June 2022, the company is focused on strategic investments to support long-term growth. The company is expecting FY22 net capital expenditure to be ~$900m to ~$1,000m which will include ~$320m relating to development of the Mt Holland lithium project.
Valuation Methodology: P/E Multiple Based Relative Valuation (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 WES has a 52-week low-high range of $40.030 - $67.200, respectively. The stock has been corrected by ~17.353% in the past three months. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers, considering the COVID-19 led disruptions and declining earnings, etc. For the purpose of valuation, a few peers like Woolworths Group Ltd (ASX: WOW), Domino's Pizza Enterprises Ltd (ASX: DMP), Adore Beauty Group Ltd (ASX: ABY), and others have been considered. Considering the expected upside in valuation, recent strategies on business growth like increasing capital expenditure, decent performance in some segments, synergies from the recent acquisitions, optimistic outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the closing market price of $41.720, down by ~0.666% as on 15th June 2022.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
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WES Daily Technical Chart, Data Source: REFINITIV
Kogan.Com Ltd
KGN Details
Amendment in Debt Facility: Kogan.Com Limited (ASX: KGN) is an ASX-listed online retailing company, which operates a portfolio of retail and services businesses. Recently, KGN has amended its multi-option facility agreement with Westpac Banking Corporation. The amendment recorded a reduction in the limit to $55.0 million, with the next covenant testing to be held on 31st December 2022. However, there has been no change to the existing terms of three years till 31 January 2024.
3QFY22 Summary:
- KGN experienced a trend of decent performance of Kogan Marketplace and Kogan First during the March quarter.
- Active customers rose by 3.6% on a YoY basis to 4,099,000 as of 31 March 2022. KGN’s growing customer base of active shoppers is one of the largest in Australia and New Zealand.
- Gross profit for the quarter fell by 11.2% YoY to $41 million. However, KGN recorded a CAGR of 20.2% during Q3FY20 to Q3FY22.
Insights of 1HFY22: The below mentioned picture gives an overview of business performance of half-year ended 31st December 2021:
Financial Performance (Source: Analysis by Kalkine Group)
Key Risks: The company is exposed to risks arising from the rising market share of peers, loss of customers and regulatory uncertainties.
Outlook: Looking forward, KGN is focused on recalibrating inventory levels and core operational costs. The company would also pursue activities to place business for its next phase of growth.
Valuation Methodology: P/E Multiple Based Relative Valuation (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 is currently trading near to its 52-week low level of $2.910, offering a decent opportunity for accumulation. The stock has been corrected by ~19.67% in the past one month. The stock has been valued using a P/E multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the COVID-19 disruptions and losses in business, etc. For this purpose of valuation, few peers like Breville Group Ltd (ASX: BRG), Temple & Beacon Lighting Group Ltd (ASX: BLX), Adore Beauty Group Ltd (ASX: ABY) and others have been considered. Considering the expected upside in valuation, reduction in debt facility, rising customer base, decent outlook, current trading levels and key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the closing price of $2.940, down by ~3.289% as on 15th June 2022.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
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KGN Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.
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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