Kathmandu Holdings Limited

Change in Senior Manager Roles:Kathmandu Holdings Limited (ASX: KMD) is a retailer of clothing and equipment for travel and adventure. The market capitalisation of the company stood at A$819.1 Mn as on 1^st November 2019. The company recently announced that it has completed the acquisition of Rip Curl on 31^st October 2019. After such completion, KMD announced the changes to the scope of the Senior Manager roles within the KMD and Rip Curl combined Group. It added that (1) Xavier Simonet would continue as the Group Chief Executive Officer (CEO) of Kathmandu Holdings Limited, now including the Rip Curl business, (2) Chris Kinraid would continue as the Group Chief Financial Officer, now including oversight of the Rip Curl business, (3) Reuben Casey, currently Chief Operating Officer, has been appointed as the Chief Executive Officer of the Kathmandu business and (4) Michael Daly would continue as Chief Executive Officer of the Rip Curl business. These changes came into effect on 1^st November 2019.

In another update, the company announced that it has issued 11,272,761 fully paid ordinary shares for the consideration of A$2.71 per new share on 31^st October 2019. The shares have been issued in partial satisfaction of the consideration payable by Barrel Wave Holdings Pty Limited to the vendors of Rip Curl Group Pty Limited for the acquisition of 100% of the shares in Rip Curl Group Pty Limited. As per the release dated 24^th October 2019, the company announced that it has successfully wrapped up the retail bookbuild component of its fully underwritten 1 for 4 pro-rata accelerated entitlement offer of new fully paid ordinary shares in Kathmandu. It added that a total of NZ$145 Mn would be raised under the offer. The following picture provides an idea of earnings for the financial year ended 31^st July 2019:


Record Earnings (Source: Company Reports)
 
 What to Expect: As per the Annual Report 2019, the company has invested an amount of $5.4 million in growth enabler projects like online platform upgrade and a new market-leading warehouse management system, which is to be operational in FY20. The company is well placed to deliver on the next level of growth opportunities. The company would be focusing on growing the core markets of Australia and New Zealand.

Stock Recommendation:The gross margin and EBITDA margin of the company stood at 60.9% and 18.4% in FY19 as compared to the industry median of 24.2% and 6.9%. It posted a net margin of 10.6% in FY19 against the industry median of 3.4%, which reflects that KMD possesses better capabilities to convert its top-line into the bottom-line as compared to the peer group. The current ratio of the company stood at 1.83x against the industry median of 1.26x. This implies that KMD is in a sound position to address its short-term obligations as compared to the broader industry. When it comes to valuation, as per ASX, the stock of KMD is trading at a price to earnings multiple of 11.84x in comparison to the industry average of 16.4x on TTM basis. On the stock’s performance front, it produced returns of 46.78% and 42.57% in the time period of three month and six months, respectively. Therefore, in light of recent fund raising, investment in growth projects, decent key metrics, liquidity levels and returns in the past months, we maintain a “Hold” rating on the stock at the current market price of A$2.820 per share, down 2.422% on November 8, 2019.

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