Kogan.com Limited

KGN Details

Business Updates: Kogen.com (ASX: KGN) provides services in the domain of departmental stores. KGN operates the business under multiple brands like Kogan Retail, Kogan Mobile, Kogan Marketplace, Kogan Travel, etc., by using two segments Kogan.com and Mighty Ape.

• JPMorgan Chase & Co and its affiliates recently acquired a 5.39% stake in KGN which is 5,759,324 ordinary class shares.
• Hosking Partner LLP reduced its stake in the company from 5.85% to 4.99% as of 24^th May 2022.

Business Segment Update:   

• com business segment in Q3FY22 reported a gross profit of $32.0mn and Mighty Ape to generate $9.1mn leading to a combined gross profit of $41.0mn. However, in Q3FY21 Kogan.com gross profit was $40.0mn and Mighty Ape’s $6.2mn.
• com segment reported adjusted EBITDA in Q3FY22 of -$3.5mn and Mighty Ape records $2.8mn relative to Q3FY21 where Kogan.com reported adjusted EBITDA of $5.5mn and Mighty Ape recorded $1.5mn.

Quarterly Business Segment update, (Source: Analysis by Kalkine Group)

Key Risks: The majority of Kogan products are discretionary so the revenue is sensitive to consumer sentiment. Thus, any impact on the Australian general economic condition will directly impact its revenue. Kogan’s retail segment is highly competitive and an increase in competitors in various segments will adversely impact its revenue. Kogan operates with a large number of international suppliers and any disruption in the supply chain will impact its operations.

Outlook: The growth in KGN is in line with the industry trend even after considering the impact of the COVID-19 crisis. While the company is positioning its business considering all risks and expected growth by maintaining the level of operational capabilities like inventory. Although its revenue declined in Q3 by 3.8% (YOY) but company clocked a growth of 19.4% CAGR from Q3FY20. The future growth will be supported by its rising customer base which increased by 20% over the quarter and 3.6% YoY to 4.1 million.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: 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 is currently trading below its average 52-week low-high level of $3.330-$13.450, offering a decent opportunity for accumulation. The stock has been down by ~4.09% in the past one month. The stock has been valued using the Price/Earnings multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers, considering the general economic condition and consumer sentiment, supply chain risk, and competition in the industry. For the purpose of this valuation, a few peers like Premier Investments Ltd (ASX: PMV), Adore Beauty Group Ltd (ASX: ABY), Breville Group Ltd (ASX: BRG), and others have been considered. Considering the upside valuation, positive compounded growth, increase in customers, growth in the Mighty Ape segment, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $3.640, as on 30^th May 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

KGN Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock price

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