Kathmandu Holdings Limited

KMD Details

Debt Facility Refinanced: Kathmandu Holdings Limited (ASX: KMD) is involved in designing, marketing, and retailing clothing and equipment for adventure and travel. It operates three segments: Outdoor (with the Oboz and Kathmandu brands), Surf (the Rip Curl brand), and Corporate (consisting of group costs, holding companies and others). On 1 June 2021, the market capitalisation of KMD stood at ~$1.05 billion. On 26 May 2021, KMD announced the completion of a $300 million debt facility refinancing for three years. The facility consists of a syndicated sustainability loan (SLL) facility of $100 million and a $200 million multi-option facility. The arrangement increases the tenor of finance and offers a pricing mechanism to incentivise improvement in material sustainability metrics.

Appointment of Group CEO and MD: On 19 May 2021, KMD announced Michael Daly as the MD and Group CEO after the resignation of Mr Xavier Simonet.

Key Metrics Performance in 1HFY21: The company posted revenue of NZ$410.7 million, up by 12.9% YoY in 1HFY21. KMD reported a higher EBIT of NZ$39.2 million and an NPAT of NZ$22.3 million on a pcp basis in 1HFY21. The company decided to resume interim dividend payment with the declaration of NZ 2 cents per share fully franked for its Australian (ANZ) shareholders (not yet estimated for New Zealand shareholders). KMD held a cash and cash equivalents balance of NZ$228.47 million as of 31 January 2021.

H1FY21 Results (Source: Company Reports)

Key Risks: The company experienced store disruptions due to the COVID-19 associated travel restrictions and government authorised closures and shutdowns. It faces lower demand for insulation and rainwear due to the lack of overseas travellers to the Northern Hemisphere.

Outlook: During 2HFY21, KMD focuses on the robust implementation of its winter season in Australasia. It expects to seek $15 million of annual savings due to synergy gains and cost initiatives implemented at the Group level. It plans to implement a loyalty program at Rip Curl, launch a direct-to-consumer online store for the Oboz brand.

Valuation Methodology: EV/Sales 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: KMD has set 21 May 2021 as the record date and 4 June 2021 as the payment date for the 1HFY21 interim dividend. The stock of KMD gave a positive return of 32.61% in the past three months and a positive return of 30.37% in the past six months. The stock is currently trading higher near the 52-weeks’ average price level of $1.540. The stock of KMD has a support level of ~$1.453 and a resistance level of ~$1.638. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of high single-digit downside (in % terms). We believe that the company can trade at a slight premium than its peer median, considering its increased revenue, EBITDA, and NPAT for FY21. For this purpose, we have taken peers like GTN Limited (ASX: GTN), Blackmores Limited (ASX: BKL), Super Retail Group Limited (ASX: SUL). Considering the valuation, decent returns in the past three months and six months, continuing risk of stores’ closures and rising COVID-19 cases in Victoria, and restrictions by the government, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $1.545, up by 4.040% on 1 June 2021.

KMD Daily Technical Chart, Data Source: REFINITIV  

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and 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 prices.

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

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

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