Kogan.com Limited

A Quick Look on Business Update: Kogan.com Limited (ASX: KGN) is known for its diverse portfolio of product and services, which comprises Kogan Retail, Kogan Mobile, Kogan Internet, etc. The market capitalisation of the company stood at ~A$487.4 Mn as on 23^rd July 2019.

Recently, the company, via a release updated the market that BlackRock Inc and Subsidiaries have been ceased to be a substantial holder in the company from 8^th July 2019.

Today on 23^rd July 2019, the company updated the market with business update for July 2019. The company stated that the final quarter of the financial year 2019 witnessed a strong first full contribution from Kogan Marketplace, with continued strong growth in Exclusive Brands as well as significant preparatory work to roll out key new verticals in 1H FY20.

The company reported YoY growth of 15.9% in active customer, representing the active customers of 1,609,000 as at 30 June 2019 against 1,388,000 as at 30 June 2018. With respect to Kogan Internet, it witnessed a growth of 273% on YoY basis in active customers as at 30 June 2019. This higher accelerated customer growth was led by promotional activities taken by the company. The company further added that the Kogan Insurance commission-based revenues for 2H FY19 witnessed a rise of more than 100% against 2H FY18. The company reported EBITDA growth of over 25% in 2H FY19 in comparison to 2H FY18. The below picture provides an idea about the gross transaction value by Kogan Marketplace.


Gross Transaction Value (Source: Company Reports)

In 1H FY19, the company reported inventories of $92.9Mn, which was comprised of $71.1Mn of inventory in the warehouse and $21.8Mn of inventory in transit. The company has made further investment in 1HFY19 towards inventory to support the growth of core Product Divisions, including exclusive brands and partner brands. Recently, the company announced that Splitit Payments Ltd has inked an agreement with it to provide its unique instalment payment solution for online purchases in Australia through the company’s website.

What to Expect: As per the Management, the company has a pipeline of new business units that would pleasure its customers in different ways and bring more competition to some industries. It is planning to roll out Kogan Super, Kogan Mobile New Zealand and Kogan Credit Cards. The company had continued to invest in its platform and logistics capability and these investments allow KGN to deliver its products faster, cheaper and to more locations. It further added that the Kogan.com team is continuing to develop an innovative and efficient business.

Stock Recommendation: The company reported a gross margin of 19.5% in 1H FY19, reflecting YoY growth of 0.1%. The company reported a current ratio of 1.56x in 1H FY19 as comparted to 1.67x in 1H FY18. The asset to equity ratio stood at 2.65x in 1H FY19, reflecting a growth of 15.5% on PCP basis. When it comes to returns to the shareholder, the company reported return on equity (RoE) of 15.8% in 1H FY19 in comparison to 18.4% in 1H FY18. Based on the unaudited management accounts, as at 30 June 2019, the Company had a cash balance of $27.5 million with total inventories of $75.7 million and no bank debt. On the stock’s performance front, it produced returns of 4.42% and 23.52% in the time span of one month and six months, respectively. However, in the time span of three months, it yielded returns of -11.26%. As per ASX, the stock is trading slightly towards the 52-week high level of $7.290. Hence, considering the above-stated facts and current trading level, we recommend a “Speculative Buy” rating on the stock at the current market price of A$5.450 per share, up 4.808% on 23^rd July 2019, owing to the release of business update for July 2019.

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