Kogan.com Limited

Healthy Operating Performance with Margin Expansion: Kogan.com Limited (ASX: KGN) is an Australia based company with a portfolio mix of retail and services business. The company has a presence across Retail, Marketplace, Mobile & Internet Insurance, Health, Cars, Travel, etc.KGN earns revenue by sale of goods and services to Australian consumers, which is sourced and imported from domestic third-party brands like Apple, Canon, Swann, Samsung, etc.

FY19 Financial Highlights: Recently, KGN released its FY19 results wherein it posted top-line at $551.8 million, ~12% growth on y-o-y. Bottom-line witnessed a yoy growth of 21.9% to $17.2 million. Gross profit during the year, stood at $90.7 million against $80.6 million in FY18 followed by 15.6% pcp growth in EBITDA at $30.1 million while EBITDA margin at 6.9% was higher against 6.3% in FY18. Cash in hand came in at $27.5million with inventories at $75.9 million at the end of June 2019. Total current assets at the end of FY19 stood at $109.5 million. Intangible assets of the company were valued at $5.8 million. Current liabilities as on 30th June 2019 stood at $65.4 million, including trade payables of $51.7 million and deferred income of $7.7million. The company enjoyed zero debt on the balance sheet with net assets of $51 million.

 
FY19 Financial Performance (Source: Company Reports)
 
 
                                     
FY19 Balance sheet (Source: Company Reports) 

During FY19, KGN reported 1,609,000 active clients with a yoy growth of 15.9%.The company implemented a proprietary marketing bidding system, which resulted in a y-o-y decline in marketing expenses and improved overall operating efficiency. Exclusive Brands of the company grew significantly and posted a yoy growth of 41.6% in revenue from FY18 and represented ~49.7% of the total sales in FY19. The significant growth can be attributed to the ongoing investment in Exclusive Brands inventory. During FY19, KGN launched Kogan Marketplace and secured $1.5 million in commission-based revenues, reflected as gross profit. The Management considers Kogan Marketplace to be a transformational step for the Company. Kogan Mobile Active Customers grew 24.4% during FY19, followed by Kogan Internet Active Customers at a whopping growth of 273.2% during FY19. Commission-based revenues from the Kogan Mobile segment were higher by 9.8% y-o-y basis.

Dividend Distribution: KGN announced fully franked, ordinary dividend of AUD 0.08200000 with ex-date of 26 August 2019, followed by payment date on 14 October 2019.
Outlook: As per FY20 guidance, KGN would continue to thrive its brand presence through deeper market penetration among existing customers and the acquisition of new customers as well. KGN expects to grow its customer base and its exclusive brands through its online presence of each respective segments.

Stock Recommendation: At the current market price of $5.640, the stock is trading at a price to earnings multiple of 37.160x with an annual dividend yield of 2.33%. The stock has gained 50.14% on YTD and is currently trading slightly towards the higher end of its 52-week trading range of $2.610 - $7.290. On the backdrop of the above parameters and current trading levels, we recommend to “Hold” the stock at the current market price of $5.640, up 7.634% on 20 August 2019, owing to the release of full-year results).
 

Beacon Lighting Group Limited

Tepid top-line growth with a decline in profitability:Beacon Lighting Group Limited (ASX: BLX) is engaged in selling of light fittings, globes, ceiling fans and energy-efficient products in the Australian market. BLX is a leading lighting retailer and emerging supplier of lighting and energy-efficient products. It supplies primarily to the commercial industry throughout Australia and other countries.

Recently, the company released its financial results for FY19 with posting sales of $235.964 million, grew by ~2.5% on a y-o-y basis, while the net profit posted a de-growth of 17.2% on y-o-y to $16.227 million. Gross margin in FY19 slipped to 64% from 65.7% in FY18. EBITDA stood at $29.734 million, shrinking 10.4% on pcp, followed by a decline in EBITDA margin at 12.3% from 14.1% in FY18. During FY19, the company reported its net profit margin at 6.7% as compared to 8.3% during the previous financial year.

Net operating cash flow was down at $12.748 million in FY19 against $15.543 million in the prior corresponding period. The company during the year, made capital expenditure worth $20.146 million. Total current assets were valued at ~$101 million including cash at 18.305 million, receivables and inventories at 12.053 million and 68.698 million, respectively. Plant, property and equipment stood at $46.009 million followed by intangibles at $5.83 million. However, borrowings of the company stood higher at $31.48 against $19.96 million in FY18. Net assets as on 30^th June 2019 stood at $83.180 million.


FY19 Financial Performance (Source: Company Reports)

Dividend announcement: Recently, the company declared a fully franked dividend of 2.00 cents per share for H2 FY2019 with a record date of 6 September 2019, followed by payment date 26 September 2019. This summarized a total dividend payment of 4.55 cents per share (fully-franked) for FY19, which is lower than the prior year total dividend payment of 5.00 cents per share.

Outlook: BLX is looking for strategic changes during FY20. The company is looking to convert Myaree (WA) franchise store into a company store in September 2019 followed by the relocation of its Midland (WA) store. The company is planning to open new stores at Virginia and Belmont, respectively. The company is attempting for further optimisation of the store network with the closure of Sunshine (VIC) and Mandurah (WA) stores. The company will introduce new products for Stores, Commercial, International, Light Source Solutions (Globes and Roadway) and Masson For Light and upgradation of website and online sales channel.

Stock recommendation: The stock delivered negative returns of 9.55% and 21.65% in the last three and six months, respectively. The market capitalisation of the stock stands at ~$218.12 million as at 20 August 2019. The company did not perform well in FY19 given the decline in EBITDA and NPAT growth along with eroded margins. BLX is available at EV/EBITDA multiple of 8.4x on TTM basis against the industry median of 6.9x. Price to book stood at 2.6x TTM basis against 1.7x of industry median. Based on the current valuations and financial performance, we believe that the stock is overvalued at the current juncture. In the absence of clear visibility of earnings and recent financial performance, we suggest investors to avoid the stock at the current market price of $1.020 (up 2.513% on 20 August 2019) and advise that investors should wait for a few more catalysts that may drive the stock.  

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