Kathmandu Holdings Limited

KMD Details

Retirement of a Group CEO: Kathmandu Holdings Limited (ASX: KMD) is engaged in retailing its clothing line and equipment for travel and adventure. The Company is mainly present in New Zealand, Australia, and the UK. It offers a range of attires, including waterproof jackets, fleece jackets, merino apparel, footwears and offers equipment, including packs, bags, sleeping bags, tents, travel accessories and camping accessories. On 9 April 2021, the company announced the retirement of its Group CEO, Xavier Simonet. The executives who were reporting to Xavier will now be reporting to the Chairman, David Kirk, till new Group CEO is appointed.

Robust Performance from Rip Curl: KMD’s associated brand, Rip Curl, has registered a robust performance during 1HFY21. Rip Curl has registered an 86% increase in its sales to NZ$251.1mn in 1HFY21 as compared with NZ$134.9mn in 1HFY20 on the back of an increase in online sales. Rip Curl has also seen significant growth in its EBIT to NZ$44.0mn in 1HFY21 as compared with NZ$16.1mn in 1HFY20.

1HFY21 Financial Highlights: KMD has reported an increase in revenues to NZ$410.71mn in 1HFY21 as compared with NZ$363.65mn in 1HFY20. The company has also registered a net profit of NZ$22.27mn in 1HFY21 as compared with NZ$7.57mn in 1HFY20.  

EBITDA Growth (Source: Company Reports) 

Key Risks: The company operates in multiple countries, which exposes them to foreign exchange risk. Any severe fluctuation in the foreign exchange may result in financial losses for the company. The company is dependent on consumer’s choice; any change in consumer’s taste and preferences may lead to loss of business resulting in financial loss for the company.

Outlook: As per the company report, KMD is expecting its wholesale order book to remain above pre-COVID levels in 2HFY21. With a healthy balance sheet, the company seems well placed to pursue growth opportunities that may provide handsome returns in the future. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, 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. 

** ~1NZD = ~0.92AUD 

Stock Recommendation: In the last one month, KMD has increased by ~8.46% and by ~10.15% in the last three months. The current market capitalisation of KMD stands at ~A$928.79mn as of 13 April 2021. The stock is currently trading above the average 52-week price level range of ~$0.635 -~$1.360. On the technical analysis front, the stock has a support level of ~A$1.216 and a resistance of ~A$1.497. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of a high single-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering the robust performance by associated brand - Rip Curl and rise in top-line and bottom-line during 1HFY21. For the purpose, we have taken peers Lovisa Holdings Ltd (ASX: LOV), Shaver Shop Group Ltd (ASX: SSG), Michael Hill International Ltd (ASX: MJH), etc. Considering an increase in top-line and bottom-line during H1FY21, positive outlook, valuation, associated risks, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $1.310 as on 13 April 2021.

KMD Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Elixinol Global Limited

EXL Details

EXL Products to Remain in UK Markets: Elixinol Global Limited (ASX: EXL) is engaged in the hemp and medicinal cannabis industries in Australia. The company is focused on creating, manufacturing, and distributing industrial hemp products and early-stage medical cannabis business. The company has recently announced that European Industrial Hemp Association (EIHA) has notified the company that its full spectrum and natural isolate products of the EIHA consortium partners can remain for sale in the UK markets. UK FSA has also confirmed regarding the continuation of CBD products from EXL in the UK markets. 

FY20 Financial Highlights: EXL has registered a decline in its revenue to $15.01mn in FY20 as compared with $30.71mn in FY19. The company has registered a loss of $104.47mn in FY20. The company has posted an increase in cash and cash equivalents to $27.74mn in FY20 as compared with $20.24mn in FY19.

Revenue and EBITDA Growth Segment-Wise (Source: Company Reports) 

Key Risks: The company is engaged in hemp and medicinal cannabis segment, which requires regulatory approval to launch its products in the market, any delay in regulatory approvals may result in a business loss for the company. The company deals with many countries, any severe fluctuation in the prices of foreign exchange may lead to financial losses for the company. 

Outlook: As per the company report, the company has forecasted decent growth in the US and European CBD markets. The US CBD market is expected to grow to US$16.8bn by 2025 from US$4.2bn in 2019. Further, the European CBD markets are expected to grow to US$2.3bn by 2025 from US$0.6bn in 2020.

Stock Recommendation: In the last one month, EXL has decreased by ~5.12% and increased by ~23.33% in the last six months. The current market capitalisation of EXL stands at ~$56.64mn as of 13 April 2021. The stock is currently trading below the average 52-week price level range of ~$0.140-~$0.475. On the technical analysis front, the stock has a support level of ~$0.168 and a resistance of ~$0.203. On a TTM basis, the stock of EXL is trading at an EV/Sales multiple of 2.1x, higher than the industry median (Specialty Retailers) of 1.6x. Considering the stock’s decent returns in the last six months, decline in revenue during FY20, higher valuation on TTM basis, and associated key risks, we are of the view that most of the positive factors of the company have been discounted at the current juncture. Hence, we suggest investors to wait for better entry-level and give an “Expensive” rating for the stock at the current market price of $0.180 as on 13 April 2021.

EXL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: 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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