Kathmandu Holdings Limited

Strong top-line growth: Kathmandu Holdings Limited (ASX: KMD) is in the business of designing marketing and selling equipment and apparel for travel and adventure in Australia, the United Kingdom and New Zealand. The company is having a wide range of products including footwear, socks, thermals, Jackets etc. The company will pay an interim dividend of NZ$ 4.0 cents per share to the shareholders who will register as at 7 June 2019. The dividend will be un-franked for Australian shareholders and will not be imputed for shareholders of New Zealand. The payment date for the dividend is June 21, 2019. The final dividend is expected to be fully franked and fully imputed.  


1HFY19 Results Overview (Source: Company Reports)

The top-line of the company grew by 13.3% to NZ$232.0 million in 1HFY19 as compared to NZ$204.8 million in 1HFY18, primarily on the back of strong sales growth from Australia, partially offset by the degrowth in New Zealand.The consolidated net profit after tax for the period was NZ$14.0 million in 1HFY19 as compared to NZ$12.3 million in the prior corresponding period reflecting an increase of ~13.8%.  In 1H FY19, retail gross margin stood at 64.2%. The gross margin improved on the back of less promotional discounting leading to a higher average selling price.

Cyclical impact on operations in 2^nd half: The company’s retail gross margin long-term target range of 61% to 63% remains unchanged. In 2H FY 19, promotional plan and margin pressure are expected to deliver lower gross margin YOY in AU and NZ. However, due to the seasonal nature of the company and its controlled entities activities, the activities in the second half of each year are expected to provide a larger portion of the sales and net profit for the full year.

The stock, meanwhile, gave a negative YTD return of 18.70% and is currently trading at a P/E multiple of 9.560x which is below the industry median of 11.2x (Consumer Cyclicals) which might be an indication of the stock is presently undervalued.

Moreover, with strong order book in termsof initial orders received from several new European and North American outdoor retailers, including trials with REI (North America) and Blacks (UK) and expected ramp up in the activities during the second half of the year due to cyclical nature of the company, we recommend a “Buy” rating on the stock at current market price of $2.200 per share (up 3.286% on 27 March 2019 owing to the release of FY19 half year results investor call transcript).

Myer Holdings Limited

Strong growth in online business: Myer Holdings Limited (ASX: MYR) is headquartered in Australia, with a network of several departmental stores in retail across Australia region.


1HFY19 Income Statement (Source: Company Reports)

The total sales were down 2.8% to $1,671.4 million in 1HFY19 as compared to $1719.7 million in 1HFY18. Total online and omnichannel sales in 1H2019 grew by 18.6% to $151.2 million (including MDL and sass & bide online sales). The company stated that sales during the second quarter fell by 1.4% which reflected an improvement on a 4.8% decline in the first quarter. The sales result demonstrates continued strong growth with respect to online, the enhanced execution of Christmas, more targeted and relevant marketing and improved service and store layouts.

What to Expect From MYR: During the second half of 2019, the company will continue to focus on the execution of the Customer First Plan including the focus on costs, profitability, and cash management. It also expects that the sales might be impacted by the exit of numerous brands and the introduction of several brands. There will be additional costs associated with these initiatives. The company will make deployments towards merchandise and online business going forward.

The stock of MYR has generated a YTD return of 36.90% and is trading close to 52-week higher level of $0.635. The company has a strong balance sheet as evidenced from the reduction of net debt by $57 million and it has the net cash position of $37 million.

On the backdrop of the above factors, we maintain our “Hold” recommendation on the stock at the current market price of $0.580 per share (up 0.87% on 27 March 2019).
 

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