Kogan.Com Limited

KGN Details

Q3FY22 Business Update: Kogan.com Limited (ASX: KGN) runs a portfolio of retail and service businesses comprising Kogan Retail, Kogan Marketplace, Kogan Mobile, third-party brands, and exclusive branded products.

• Top-line KPIs: Active customers improved to 4,099k as of 31 March 2022, up by 3.6% PcP. Kogan First members grew by 264% PcP to 328,000 as of 31 March 2022, reflecting a substantial growth of 19.7% since 31 December 2021. Gross sales clocked $262.1 million, down by 3.8% PcP.
• Bottom-Line Update: Gross profit stood at $41.0 million, dipping by 11.2% on a PcP basis; however, it clocked a CAGR (between 3QFY20 to 3QFY22) of 20.2%. Adjusted EBITDA stood negative at $0.8 million. Inventories were valued at $193.9 million, reflecting the reduced inventory level in transit.

KGN Financial Snapshot; Analysis by Kalkine Group

Key Risks and Challenges: KGN needs a prudent inventory management system as the company held $169.5 million in inventory in the warehouse and a $24.4 million inventory in transit. Revenue from exclusive brands and third-party brands is unstable with extreme growth cycles.

Outlook: The company is inclined towards recalibrating its operating costs alongside current growth levels to support a decent return to the historical operating margins. The company’s customer base is nearly 4.1 million active shoppers, one of the largest registered in Australia and New Zealand.

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 gave a negative return of ~63.83% in the past year. The stock is currently trading close to its 52-week low level of $3.330. The stock has been valued using the Price/Earnings multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering the potential downshift in economic activities and changing consumer behaviour, the company might trade at some discount to its peers. For valuation, a few peers like Temple & Webster Group Ltd (ASX: TPW), Adore Beauty Group Ltd (ASX: ABY), Booktopia Group Ltd (ASX: BKG) and others have been considered. Given the decent fundamental trends, significantly large customer base, favourable financial position, current trading levels, growth in Kogan Marketplace, upside indicated by valuation, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the closing market price of $3.660, down by ~2.66%, as of 16 May 2022.

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 for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and is 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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