Kogan.com Limited

KGN Details

1HFY22 (Ended 31 December 2021) Results in Spotlight: Kogan.com Limited (ASX: KGN) runs a portfolio of retail and service businesses comprising Kogan Marketplace, Kogan Internet, Kogan Retail, Kogan Travel, etc. It offers products under exclusive brands such as Kogan, Vostok, Ovela, Komodo, etc., and from domestic & imported third-party brands.

• KGN posted a CAGR of ~46.9% in gross sales since 1HFY20. The increase in 1HFY22 gross sales was led by a ~28.7% Y-o-Y increase in gross sales of the Kogan Marketplace business and the number of sellers on the platform.
• Kogan First loyalty program continued to scale with over ~310,000 subscribers in February 2021. The program had over ~274,000 subscribers as of 31 December 2021, up by ~176.4% on pcp.
• The Exclusive Brands contributed ~37.5% to overall gross profit in 1HFY22, driven by ongoing investment in the Exclusive Brands inventory, widening of the product range, and demand of growing active customers.

Liquidity & Debt Position Highlights; (Analysis by Kalkine Group)

Key Risks: KGN faces the risk of rising warehousing and selling costs due to increased inventory levels and logistics costs led by COVID-19 disruptions. Peer competition and investment in key talent for retention and reward also pose risks to the business. 

Outlook:

• The Kogan Marketplace platform continues to have a robust pipeline of new sellers to come onboard and will be continuously enhanced to support ongoing exceptional growth.
• To grow subscribers of Kogan First to ~1,000,000 by FY26, and continue growth momentum in Kogan Marketplace and Exclusive Brands, KGN plans to stay invested in marketing and subscriber benefits.

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 of KGN gave a negative return of ~37.68% in the past three months and a negative return of ~50.48% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $4.500 - $14.250. The stock has been valued using the P/E-multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ mean P/E multiple, considering its continued net losses, the decline in excusive brands revenue, and continuing negative cashflows. For this purpose of valuation, a few peers like Adore Beauty Group Ltd (ASX: ABY), Breville Group Ltd (ASX: BRG), Wesfarmers Ltd (ASX: WES) have been considered. Considering the current trading levels, growth in gross sales, earnings contribution from MightyApe acquisition, plans to invest in the continued growth of Kogan Marketplace, Kogan First subscribers, new verticals, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $5.060, down by ~4.167%, as of 15 March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

KGN Daily Technical Chart, Data Source: REFINITIV 

Cettire Limited

CTT Details

Substantial Shareholding Change: Cettire Limited (ASX: CTT) is an online retailer of personal luxury goods comprising apparel, shoes, accessories, through its website. On 10 February 2022, Cat Rock Capital Master Fund LP increased its voting shareholding from ~8.71% to ~9.77% in CTT.

Foray in Chinese Market: Mainland China is forecasted to be the largest market for personal luxury goods by 2025 in the world, offering a ~$150 billion potential market opportunity for Cettire. Accordingly, CTT has signed a partnership with a Chinese firm JD. Com, one of the leading e-commerce platforms in China with over ~550 million active customers.

Growth in Top-Line & Product Margin in 1HFY22 (31 December 2021):

• The product margin increased by ~178% YoY from ~$15.4 million in 1HFY21 to ~$42.7 million in 1HFY22.
• CTT registered robust growth in operating cash flows, up by ~43% Y-o-Y to ~$12.3 million in 1HFY22 from ~$8.6 million in 1HFY21 due to its capital light business model and lucrative working capital profile. The cashflows were partially reinvested in brand marketing to aid long-term returns.

Growth in Active Customers, Highlight; (Analysis by Kalkine Group)

Key Risks: The company faces increasing competition in the retail space, expansion to new markets, new product category launches, and COVID-19 disruptions.

Outlook:

• CTT recorded ~242% growth in gross revenue on pcp in January 2022 and experienced a positive trading momentum in 2HFY22. CTT plans to optimise the opportunity for revenue growth globally. It aims to prioritise customer acquisition and technology investment in short-term.
• The company anticipates significant market penetration opportunities in established markets with localised service and plans to unlock the current markets via migration to the proprietary storefront for localisation.

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: The stock of CTT gave a negative return of ~63.33% in the past three months and a negative return of ~58.78% in the past six months. The stock is currently trading below its 52-weeks’ average price level band of $1.170 - $4.805. The stock has been valued using the Enterprise Value to Sales 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 than its peers’ median EV/Sales multiple, considering net loss in 1HFY22, investments in tech platform, and plans to invest in long-term strategy and brand building. For this purpose of valuation, a few peers like Temple & Webster Group Ltd (ASX: TPW), DW8 Ltd (ASX: DW8), Mad Paws Holdings Ltd (ASX: MPA), and others have been considered. Considering the current trading levels, decent financial performance in 1HFY22, reported positive trading momentum in January 2022, plans to explore new markets for expansion, nil debt levels, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.415, as of 15 March 2022, 11:45 AM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

CTT Daily Technical Chart, Data Source: REFINITIV  

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.

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.

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