Kogan.Com Limited

KGN Details

Change in Substantial Holdings: Kogan.Com Limited (ASX: KGN) operates a portfolio of retail and services businesses, which primarily includes Kogan Retail, Kogan Marketplace, Kogan Mobile, Kogan Internet, Kogan Insurance, Kogan Travel, etc. Recently, Hooking Partners LLP (acting as an investment manager for discretionary client portfolios) has made a change to holdings in KGN to 6.09% against the previous holdings of 5.99%.

FY21 Financial Summary:

• Strong Trading Performance: The company’s strong trading performance in FY21 resulted in decent growth into its key metrics, evident by the growth of 52.7% in gross sales. The company surpassed the toll of $1 billion in gross sales to $1.179 billion in FY21 against $772.3 million in FY20.
• Growth in Revenue: Revenue for the year amounted to $780.7 million against $497.9 million in FY20, reflecting YoY growth of 56.8%. KGN witnessed a CAGR of 33.4% since FY19 in revenue. However, KGN’s NPAT went down by 86.8% to $3.5 million, owing to one-off inventory, logistics and Mighty Ape acquisition costs.
• Acquisition of Mighty Ape: During FY21, the company wrapped up the acquisition of Mighty Ape Limited at the consideration of $122.4 million, and KGN is optimistic that the said acquisition is likely to significantly contribute to revenue growth.

Gross Sales Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Competitive Pressure: The company’s financial health could be impacted by the increasing pressure from peers and changing consumer sentiments.
• Inventory Management: The company is required to maintain enough inventory and avoid the accumulation of excess inventory in order to operate its business successfully.

Outlook:

• Looking forward, the company is optimistic about the strong pipeline of new sellers which are likely to be onboarded.
• KGN expects to potentially execute logistics projects, which would not require the significant capital expenditure in FY22.

Valuation Methodology: P/CF 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: KGN has been benefited from recognition of goodwill, as well as the significant right to use assets, lease liabilities and intangibles from the acquisition of Mighty Ape. The company closed FY21 with a net cash balance (total cash less drawn debt) of $12.8 million. The stock of KGN is just recovered from its 52-week low level of $8.700. The stock of KGN has been corrected by ~3.79% in the past one month. The stock has been valued using the P/CF multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight premium to its peers’ average P/CF multiple, considering the growth in revenue, high current ratio, and the recent acquisition synergies. For the purpose of valuation, peers such as Redbubble Ltd (ASX: RBL), Super Retail Group Ltd (ASX: SUL), Booktopia Group Ltd (ASX: BKG), and others have been considered. Considering the expected upside in valuation, decent outlook, growth in top-line, decent liquidity position, synergies from the recent acquisition, current trading level and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $9.990 as on 11^th October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

KGN Daily Technical Chart, Data Source: REFINITIV  

Bubs Australia Limited

BUB Details

Rebalance of S&P/ASX Indices: Bubs Australia Limited (ASX: BUB) provides a high-quality range of organic baby food, goat milk and organic cow’s milk infant formula products, adult goat milk powder products and fresh dairy products. As per the recent quarterly rebalance of S&P/ASX Indices, BUB has been removed from S&P/ASX 300 Index, which became effective on 20^th September 2021.

FY21 Financial Summary:

• Fall in Revenue: Revenue for the year ended 30^th June 2021 fell by 28% to $39.3 million against $54.6 million in FY20 due to the impact of COVID-19. Gross revenue for the year amounted to $46.8 million, down by 24% over pcp.
• Decline in Gross Margin: The company’s gross margin went down to $7.3 million loss, mainly indicating inventory write-down/write off $12.6 million and sale of excess bulk powder at a loss to maximise cash conversion.
• Stable Gross Margin of Goat Formula: Bubs maintained goat formula gross margin at 34%, which is in line with FY20. The group’s gross margin of branded products stood at 21%, which showcased increased domestic trade spend and change in Channel mix.

Gross Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Demand and Supply Risk: The company’s financial and operational health, could be impacted by the falling demand and supply from the customers.
• Forex Headwinds: BUB has operations in Australia, New Zealand, China, the USA, and Europe and is exposed to currency risk arising from movements in the currencies of those countries against the AUD dollar.

Outlook:

• For FY22, the company is confident about the opportunity for a significant local challenger brand with strong home market engagement with domestic consumers in Australia & New Zealand.
• The company seems to be well-positioned on the back of strong foundations, brand share growth, and a robust balance sheet.
• BUB is likely to conduct 2021 Annual General Meeting on 30^th November 2021.

Valuation Methodology: EV/Sales 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 company closed FY21 with a robust balance sheet, backed by increasing cash reserves to ~$27.9 million against ~$26.02 million as on 30^th June 2020. The stock is trading below its 52-weeks’ low-high average levels of $0.315 - $0.830. The stock of BUB has been corrected by ~7.59% and ~26.99% in the past one and three months, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average EV/Sales multiple, considering the fall in revenue, low gross margin, and negative ROE. For the purpose of valuation, peers such as Synlait Milk Ltd (ASX: AM1), A2 Milk Company Ltd (ASX: A2M), Blackmores Ltd (ASX: BKL), and others have been considered. Considering the expected upside in valuation, decent liquidity position, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.360, as on 11 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

BUB Daily Technical Chart, Data Source: REFINITIV  

Vita Group Limited

VTG Details

Become a Substantial Holder: Vita Group Limited (ASX: VTG) provides telecommunications, computers and related products and services via retail and business channels. On 24^th September 2021, Pinnacle Investment Management Group Limited and its subsidiaries became a substantial holder in the company with voting power of 5.07%.

FY21 Financial Summary:

• Rising Revenue Contribution from Artisan Business: For the year ended 30^th June 2021, the company recorded revenue amounting to $633.5 million against $773.1 million in FY20. This fall in the topline was mainly due to ongoing impacts from COVID-19. However, VTG witnessed revenue growth contribution from growing Artisan Aesthetic Clinics (Artisan) business.
• Increase in NPAT: NPAT for the year rose by 17% to $26.3 million, supported by non-recurring items, which include gain on sale of retail Information and Communication Technology (ICT) Business. During the year, VTG posted a growth of 8% and 1% in EBIT and EBITDA to $40.3 million and $50.3 million, respectively.
• Declaration of Dividend: VTG declared a fully franked final dividend of $4.0 million, equating to 2.4 cents per share.

EBITDA and EBIT (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Headwinds: The company’s business could be impacted by the uncertainties arising from the COVID-19, which impacted its topline in FY21.
• Regulatory Risk: Any failure in fulfilling regulatory obligation could lead the business to fines, penalties, etc. As a result, its operational performance could be hammered.

Outlook:

• The company continues to focus on delivering on its long-term potential in Artisan, positioning itself well at the premium end of the market in FY22.
• VTG anticipates that the retail ICT market is likely to be challenging, owing to the ongoing COVID-19 impacts. Despite this, the company would maintain its focus on adding value to its customers and providing exceptional services.
• The company has scheduled to conduct the 2021 Annual General Meeting on 26 November 2021.

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 company closed FY21 with a net cash position of $31 million, backed by JobKeeper and the proceeds of divestments. The stock of VTG is trading near to its 52-week low level of $0.770, offering a decent opportunity for accumulation. The stock of VTG gave a negative return of ~8.72% in the past one month. The stock has been valued using the P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average P/E multiple, considering the COVID-19 disruptions, declining revenue, and low net margins. For this purpose of valuation, peers such as JB Hi-Fi Ltd (ASX: JBH), Premier Investments Ltd (ASX: PMV), Accent Group Ltd (ASX: AX1), and others have been considered. Considering the expected upside in valuation, decent outlook, increasing EBITDA, rising NPAT, current trading levels and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.785, down by ~0.633% as on 11 October 2021.

VTG Weekly Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: 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.

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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