Kogan.com Limited

 
Gross Sales Increased over Half a Billion Dollars in FY19: Kogan.com Limited (ASX: KGN) is a small-capconsumer discretionary company with the market capitalisation of ~$615.43 Mn as of 17 October 2019. The company announced an ordinary fully paid final dividend of 8.2 cents per share (fully franked)on 20 August 2019, which was paid on 14 October 2019, bringing the total dividend to 14.3 cents per share representing a year on year growth of 10%. During the year ended 30 June 2019, the company had a strong balance sheet with $27.5 million in cash and an undrawn debt facility of $30 million.Inventory levels were $75.9 million, with more than 99% of this being less than 365 days old.The company had many highlights during the year, as its gross sales went up by 12% on a YoY basis and exceeded half a billion dollars for the first time.15.9% growth of active customers was observedtotalling more than 1.6 million in FY19.Net working capital fell $19.8 million in FY19, reflecting deployment that has been made during the financial year towards inventory in order to support the long term sustainable growth. While inventory increased overall, it reduced in the 2H from $92.9 million at December 31, 2018 to $75.9 million at June 30, 2019.

Financial Snapshot (Source: Company Reports)

Business Achievements: The company has been expanding its warehousing footprint to 13 locations providing faster and cheaper fulfilment to customers. Kogan.com also achieved strong growth on Kogan Mobiles, Kogan Internet and Kogan Insurance and there was a launch of Kogan Marketplace, Kogan Money Home Loans and Kogan Cars.

The company is also expected to launch Kogan Money Super, Kogan Money Credit Cards, Kogan Mobile New Zealand and Kogan Energy in 1HFY20.During the year, the company was awarded with numerous prestigious awards such as (1) three-peat of the Peoples’ Choice Award at the Australia Post Online Retail Industry Awards (ORIAS), (2) MOZO Experts Choice Awards for Kogan Internet, Kogan Money & Kogan Life Insurance, (3) Finder Award for Best Prepaid SIM – Kogan Mobile Extra Large 30 Day Plan. EBITDA grew up by 15.6% to a total of $30.1 million, which included $1.2 million of non-cash equity-based compensation. It was also impacted by unrealised FX losses amounting to $0.2 million, which were non-cash.

Outlook: In the coming year, the company is scaling up and is planning to launch new verticals and further growth with respect to its active customer base, which would be driving growth in its product divisions. The company plans to expand Kogan Portfolio of products and services either with the help of selective and opportunistic M&A or partnering with the industry leaders.

Stock Recommendation: The gross margin and EBITDA margin of the company have increased from 19.5% and 6.1% to 20.7% and 7%, respectively, implying that the company is making a reasonable profit on sales and is keeping the overhead costs in control. As per ASX, the stock of SHL is trading closer towards its 52-week high price of $6.930, and therefore, probability for correction increases. Hence, considering the aforesaid facts and current trading levels, we have a “Hold” stance on the stock at the current market price of $6.860, up 4.733% on 17 October 2019.

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