Stocks’ Details 

Kogan.com Limited

A Sneak Peek at FY20 Results: Kogan.com Limited (ASX: KGN) manages a portfolio of retail and services businesses that include Kogan Retail, Kogan Marketplace, Kogan Insurance, Kogan Travel and many more businesses. During FY20, the company’s gross sales increased by 39.3% as compared to the previous corresponding period and came in at $768.9 million. Further, the company’s gross profit increased by over 39.6% to $126.5 million. During the year, the company was focused on improving customer value. The company’s active customers grew to 2,183,000 as at 30 June 2020, an increase of 35.7% year over year. At the end of the period, the company had a cash balance of $146.7 million. During the period, the company acquired Matt Blatt. The company remained on track to expand and diversify its business in FY20 via the unveil of Kogan Money Super, Kogan Money Credit Cards, Kogan Energy and Kogan Mobile New Zealand. The company declared a total dividend of 21.0 cents per share, up 46.9% year over year.

FY20 Key Highlights (Source: Company Reports)

August 2020 Update: In a business update provided on 16 September 2020, the company informed that during the month of August 2020, its gross sales increased by 117%, as compared to the previous corresponding period. Further, the company’s gross profit increased by over 165% on pcp.  The company reported adjusted EBITDA growth of more than 466% year over year. Active customers came in at 2,461,000 as at 31st August 2020, with an incremental 152,000 active customers in the month of August 2020.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

P/CF Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Over the last three months, the stock of KGN has provided a return of 23.64% and is trading close to its 52-week high of $25.57. The company remains on track to bring more in-demand products and services to customers at the best prices in the industry. In FY21, the company expects to grow its Active Customer base, launch new products in New Zealand, grow across new verticals, and benefit from acquisition synergies. On the technical analysis front, the stock of the company has a support level of ~A$19.5 and a resistance level of ~A$21.2. We have valued the stock using the P/CF multiple based illustrative relative valuation method and arrived at a target price of high single-digit upside (in percentage terms). For the purpose, we have taken peers like Temple & Webster Group Ltd (ASX: TPW), Collins Foods Ltd (ASX: CKF), JB Hi-Fi Ltd (ASX: JBH), to name a few. Considering the company’s gross sales and revenue growth, diversified business, and its decent FY20 results, we give a “Hold” recommendation on the stock at the current market price of $20.50, down by 0.534% on 27 October 2020.

Redbubble Limited

Sales of 6 Mn Shares: Redbubble Limited (ASX: RBL) operates a creative online marketplace for print on demand products. On 21 October 2020, the company informed the market that Mr Martin Hosking, RBL’s Managing Director and CEO, has sold 6 million shares in the company, to provide philanthropic help for the Melbourne tertiary education sector.

1QFY21 Update: For the period, the company reported marketplace revenues of $147.5 million, representing a YoY growth of 122% on a constant currency basis. Total revenues for 1QFY21 came in at $175.8 million, up 114% year over year. Gross profit for the period witnessed a growth of 149% to $25.9 million. RBL reported artist revenues of $13.6 million, indicating a rise of 108%. As at 30 September 2020, the company’s cash balance stood at $85.4 million.

1QFY21 Key Highlights (Source: Company Reports)

FY20 Key Highlights: For FY20, the company reported marketplace revenue amounting to $348.9 million, reflecting a rise of 36%. Gross profit for the period witnessed a growth of 42% to $134.4 million. As a result of the increasing profitability and working capital advantage, the company reported a free cash inflow of $38 million against an outflow of $0.2 million in FY19.

What to Expect: The company seems to be well-positioned to build on a decade of momentum and aggressively pursue global opportunities. During 2021, the company will be focused on user acquisition and transaction optimisation. The company is likely to conduct its Annual General Meeting on 28 October 2020.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is focused on physical product and fulfilment network expansion as well as artist acquisition, activation, and retention. The stock of RBL has moved up by 76.67% and 404.76% within three and six months, respectively. As a result, the stock is trading close to its 52-week high of $6.020. On the technical analysis front, the stock of the company has a support level of ~A$3.5 and a resistance level of ~A$4.3. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and have arrived at a price correction of low single-digit (in percentage terms). Therefore, in light of the current trading levels, and upside movement in the stock in the past few months, we are of the view that most of the positives are factored in at the current juncture. Hence, we give an “Expensive” rating on the stock at the current market price of $4.24, down by 4.289% on 27 October 2020. We also suggest investors to wait for a correction that might offer better entry levels for the stock.

Zip Co Limited

Z1P Acquires Urge: Zip Co Limited (ASX: Z1P) is engaged in providing point-of-sale credit and payment solutions to customers and offers a range of integrated Retail Finance solutions to merchants. On 26 October 2020, the company announced that it has acquired all the shares in Urge Holdings Pty Ltd (“Urge”), for an upfront consideration of ~$3 million. Urge’s shareholders may receive an additional $5.5 million of deferred consideration, subject to certain milestones being achieved within the next 3.5 years. Z1P will integrate Urge’s team and its facilities, which consist of expertise in search functionality, optimisation and indexation.

Other Recent Updates: In another Update, the company announced that it unveiled Tap & Zip, a fresh product feature that reimagines buy now, pay later (BNPL) instore by facilitating Zip Pay users to shop easily anywhere and everywhere that accepts Visa .

Q1FY21 Key Update: During the quarter, the company reported revenue of $71.7 million, which soared 88% YoY. Transaction volume in 1QFY21 stood at $943.1 million, up 96% on pcp. Customers during the quarter increased by a whopping 114% and came in at 4.5 million. Merchants on the platform increased 69% YoY. During the quarter, the company became a chief issuer with Visa and inked a deal with Marqeta to further enhance customer’s payments experience. Recently, the company completed the acquisition of QuadPay, Inc. After the completion of the transaction, Z1P would emerge as a global BNPL leader in 5 markets AU, NZ, US, UK, and SA.

FY20 Key Highlights: In FY20, Z1P reported revenue amounting to $161 million, with a rise of 91% over FY19. The company achieved $2.1 billion in annualised transaction volume in FY20, an increase of 91% year over year. These results were supported by the delivery of the ANZ strategy whilst accelerating global growth ambitions.

Key Highlights (Source: Company Reports)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company expects to unveil Zip’s BNPL business in the UK in H1FY21 and continues to invest and grow its team, capabilities, and networks to successfully leverage its global ambitions. The stock of Z1P went down up by 1.79% in the last three months. On the technical analysis front, the stock of the company has a support level of ~A$5.5 and a resistance level of ~A$6.5. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and have arrived at a target price of high single-digit upside (in percentage terms). For the purpose, we have taken peers like Afterpay Ltd (ASX: APT), FlexiGroup Ltd (ASX: FXL), and Tyro Payments Ltd (ASX: TYR).  Considering the decent 1QFY21 trading update, recent acquisition of Urge, new product launch and decent long-term growth, we give a “Hold” recommendation on the stock at the current market price of $6.02, down by 5.346% on 27 October 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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