Kogan.com Ltd

KGN Details

Business Update: Kogan.com Ltd (ASX: KGN) is engaged in retail and service businesses. The company's businesses include Kogan Retail, Kogan Marketplace, Kogan Mobile, Kogan Internet, Kogan Insurance, Kogan Travel, Kogan Money, Kogan Cars, Kogan Energy, Dick Smith and Matt Blatt. KGN has provided a recent update on its business performance on 21 May 2021. As per the company reports, KGN has witnessed solid demand from customers over 1HFY21. Due to decent demand, the company has significantly expanded its inventory levels and its logistics footprints to 31 facilities. Further, the company has informed about near term supply chain inefficiencies and inventory planning challenges. The company is facing higher warehouse costing since KGN has been increasing inventory levels since late 2020. KGN has taken these issues into consideration and expected to resolve the issues on an immediate basis. Meanwhile, operating performance is likely to remain under pressure. The company expects its FY21 adjusted EBITDA in the range of $58mn - $63mn against an adjusted EBITDA of $49.7mn in FY20, exhibiting a growth range of ~16.7% to 26.8% on YoY basis.

1HFY21 Financial Highlights: The company has registered an increase in revenue to $414.0mn in 1HFY21 against $219.54mn in 1HFY20. The company has registered an increase in its profit to $23.60mn in 1HFY21 against $8.92mn in 1HFY20. KGN has reported a decline in its cash and cash equivalents position to $78.95mn as on 31 December 2020 against $146.72mn as on 30 June 2020.

Revenue and Profit Growth (Source: Company Reports)

Key Risks: The company operates in multiple countries. Any severe movement in foreign exchange prices may lead to forex losses for the company. KGN is mainly engaged in retailing products, any disruption in the supply chain will lead to a decline in sales for the business and may impact the financials of the company.

Outlook: With strong customer demand, the company is double in its size. Despite the current issues with inventory management in the short-term, the company is confident in delivering the higher demand more strategically in 1HFY22 and scaling up its operations steadily, going forward. 

Valuation Methodology: EV/EBITDA based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, 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 return of ~-32.71% in the last one month and a return of ~-46.29% in the last three months. The current market capitalisation of KGN stands at ~$1.07bn as of 21 May 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$8.70-~$25.57. On the technical analysis front, the stock has a support level of ~$7.77 and a resistance of ~$11.52. We have valued the stock using an EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount as compared to its peer median, considering the company is expecting high warehouse costing and operational issues with the inventory management and reported a decline in cash. For this purpose, we have taken peers Redbubble Ltd (ASX: RBL), Temple & Webster Group Ltd (ASX: TPW), Adairs Ltd (ASX: ADH) to name a few. Considering an increase in customer demand for its products, significant increase in profit in 1HFY21, valuation and associated business risks, we recommend a “Speculative Buy” rating on the stock at the current market price of $8.70, down by 14.286% as on 21 May 2021. The intra-day decline could be due to the rising warehousing cost and challenging near-term outlook, as disclosed in the recent trading update.

 KGN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: 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.

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