Kogan.com Limited

KGN Details

Shareholding Change: Kogan.com Limited (ASX: KGN) is engaged in the retail and services businesses and includes Kogan Retail, Kogan Marketplace, Kogan Mobile, Kogan Internet, Kogan Insurance, Kogan Travel, to name a few in its portfolio. On 3 September 2021, Hosking Partners LLP (“HP LLP”, acting Investment manager) increased his voting rights from 5.99% to 6.09% in KGN.

Performance Rights Cancellation: On 27 August 2021, KGN declared the cancellation of 590 shares due to the lapse of conditional right to shares as the conditions have not been met or exercised to satisfaction.

Issue of Shares: On 24 August 2021, KGN issued 326,646 fully paid shares due to the vesting of performance rights given as per an Equity Incentive Plan (EIP). The firm also applied for the listing of the shares on the ASX as of 24 August 2021.

FY21 Financial Results:

• Revenue Growth: KGN posted $780.7 million revenue from ordinary activities, up by 56.8% YoY on FY20 due to growth in Kogan Marketplace and its product divisions.
• A Decline in NPAT: The NPAT declined by 86.8% YoY to $3.53 million in FY21.
• Acquired Mighty Ape Limited: On 1 December 2020, KGN acquired Mighty Ape Limited for $122.4 million to be paid over four tranches. KGN is advancing well with the Mighty Ape’s integration and registering $80.21 million revenue for the seven months to 30 June 2021.
• Interim Dividend: KGN paid 16 cents per share of interim dividend on 31 May 2021. The Board has opted to preserve cash for investment and has decided not to declare FY21 final dividend.
• Customers’ Growth: KGN reported an increase in the active customer base to 3,207,000, up by 46.9% YoY as of 30 June 2021. The company also gained additional 764,000 active customers from Mighty Ape.

Gross Sales Trend from FY19-FY21; (Analysis by Kalkine Group)

Key Risks: KGN faces uncertainty in demand forecast during the COVID-19 crisis, which might lead to surplus inventory management, increased warehousing, and storage costs.

Outlook:

• The company aims to grow the Kogan First memberships towards its mid-term goal of 1 million members.
• KGN will focus on the growth of exclusive brands, Kogan Marketplace, integration with Mighty Ape operations.
• KGN anticipates implementing logistics projects with relatively lower capex and enhance operating leverage.
  

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 stock of KGN gave a negative return of ~22.50% in the past six months and a negative return of 43.32% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level band of $8.700 - $25.570. The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ median, considering its lower NPAT, negative net operating cash outflows, the risks associated with the COVID-19 of supply chain disruptions, and higher warehousing costs, etc. For the purpose of valuation, few peers like Redbubble Limited (ASX: RBL), Booktopia Group Limited (ASX: BKG), Adore Beauty Group Limited (ASX: ABY), have been considered. Considering the current trading levels, increase in gross sales, active customers, ongoing integration with Mighty Ape, plans to increase Kogan First memberships, exclusive brands, & Kogan Marketplace, valuation, and associated risks of COVID-19, consumer demand, and inventory management, we give a ‘Speculative Buy’ rating on the stock at the current market price of $10.400 as on 13 September 2021, down by ~1.422%. 

KGN Daily Technical Chart, Data Source: REFINITIV 

Bubs Australia Limited

BUB Details

Removal of BUB from the Index: Bubs Australia Limited (ASX: BUB) manufactures infant nutritional products and offers organic baby food, goat milk, infant formula children’s vitamin and mineral supplement products’ globally. S&P Dow Jones Indices has announced the removal of BUB from the S&P/ASX 300 Index, effectively before the opening on 20 September 2021 quarterly review.

FY21 Financial Performance:

• A Decline in Gross Revenue: The company recorded a decline of 24% YoY to $46.8 million for FY21 due to COVID-19 disruptions.
• Net Loss After Tax: The company registered a significant increase in net loss from $7.77 million in FY20 to $74.73 million in FY21.
• Chinese Business Growth: The company witnessed 26% YoY growth in the infant formula revenue via its Cross-Border e-commerce (CBEC) Channel. Even the total international gross revenue ex-China rose by 57% YoY in FY21.
• Liquidity Position: The company held a strong balance of cash and cash equivalents of $27.9 million as of 30 June 2021.

Loss Before Tax from FY20-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces supply chain disruptions, increased international freight costs, and impact on export sales to South-East Asia (SEA) during COVID-19, affecting its financials.

Outlook:

• BUB plans to build hero product lines (Bubs® Goat Infant Formula product) in its established channels, expand Bubs® brand awareness in new categories as a specialist dairy producer.
• The company aims to expand globally, consolidate growth in the SEA market penetration, and set a footprint in North America & South Korea.
• The company aims to build the Bubs® brand in China and anticipates sales momentum to exist across all channels.

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 stock of BUB gave a negative return of ~25.96% in the past six months and a negative return of ~36.88% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.315 - $0.830. The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average, considering its lower revenue, increase in losses, disruption in supply chain, increased international freight costs, and the impact on export sales, etc. For the purpose of valuation, few peers like Tassal Group Limited (ASX: TGR), Select Harvests Limited (ASX: SHV), Murray Cod Australia Limited (ASX: MCA) have been considered. Considering the current trading levels, revenue growth momentum in 2HFY21 driving up to pre-COVID-19 levels, growth in international markets, disciplined operating expenditure management in FY21, decent growth plans (launch of BUBS™ Toddler Formula on Walmart & Amazon.com) in Q1FY22, Bubs® brand building in China, valuation, and key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.385 as on 13 September 2021, down by ~2.532%.

BUB Daily 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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