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Summary
- Online retail service provider Kogan noted significant growth in its share price post the release of July 2020 trading update.
- In the last three months and six months, the Kogan has delivered remarkable returns of ~120% and ~282% respectively. The growth was aided by an increase in gross sales and active users.
- The Company recently completed its raising with a A$100 million placement and A$20 million through SPP to provide financial flexibility to act promptly on future value accretive opportunities.
- Kogan has a strong track record of acquiring and incorporating iconic Australian retailers like Dick Smith and Matt Blatt.
Kogan.com Ltd (ASX:KGN) is a portfolio of retail & services businesses including Kogan Retail, Kogan Marketplace, Kogan Insurance, and Kogan Travel, among others.
The Company is famous for its price leadership via digital efficiency. It has more than 8 million active subscribers. Kogan focuses on making in-demand products and services that are affordable and accessible to the people.
Stock Information:
In the last six months, the share price of Kogan.com has gone up by ~282%. In three months, the shares have delivered growth of ~120%.
On 10 August 2020, the Company released its business update for July 2020, post which the shares zoomed up on ASX. The shares settled at A$20.660 with an increase of 9.835% compared to the previous close. During the day’s trade, Kogan shares hit a new 52-week high. KGN has a market cap of A$1.98 billion and around 105.28 million outstanding shares.
Let us get into the details of the July 2020 business update released today and then look at the other updates that have driven KGN share performance over the past couple of months.
Business Update for July 2020:
On 10 August 2020, the Company, in the July 2020 business update, reported the addition of 126,000 active customers to reach 2,309,000 as on 31 July 2020.
During the month, the gross sales improved by over 110% and gross profit by over 160% YoY. The adjusted EBITDA was above A$10 million.
The Company would release its FY2020 results on 17 August 2020, which will provide a better picture of its performance.
Q4 FY2020 Highlights:
As compared to the previous corresponding period, the Company in Q4 FY2020 (period ended 30 June 2020) reported growth of over 95% in gross sales while gross profit was up more than 115%. Adjusted EBITDA improved by over 149%.
June 2020 gross sales crossed A$94 million, while gross profit and adjusted EBITDA exceeded A$17 million and A$7.9 million, respectively.
The number of active customers increased by 109,000 in June to reach 2,183,000. By the end of the quarter, the Company had cash worth A$147 million. The position of total inventories stood at A$113 million, with A$80.6 million in the warehouse and A$32.5 million in transit.
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Important Announcements in The Recent Times:
Completion of the Capital Raising:
Recently, Kogan completed its capital raising, where it raised A$100 million via Placement and A$20 million via the share purchase plan. Each share under the placement and the SPP was issued at A$11.45 per share.
The proceeds through the placement and the share purchase plan would be used to provide financial flexibility to act promptly on future value accretive prospects that expand KGN’s offering, grow its customer base or improve its operating model.
The Company is well placed to take up value accretive opportunities in the future. Below are a few growth drivers which would support Kogan in the future:
Pole Position:
- Changes in customer spending patterns are forcing more expenditure online.
- com has been successful in securing the e-Commerce market share.
- Ability to obtain synergies via leading systems, diversified supply chain plus a low cost of doing business.
Kogan as a Leading Platform and Recognised Brand:
- Kogan has more than 2 million active customers with robust buying behaviour.
- Strong & recognisable brand that propels free website traffic.
- Kogan Marketplace, Exclusive Brands strategy along with Kogan First loyalty scheme.
Kogan has Diversified Supply Chain:
- KGN has a diversified supply chain which is designed to attain market competitiveness, stability, continuity plus election.
- It has scalable & extensive logistics network with 15 distribution centres that ensures fast and cost-efficient delivery.
Proprietary Technology:
- Kogan is Industry-leading proprietary platforms across its customer-facing and back end operational systems.
- Technology-driven marketing, fulfilment & logistics facilities.
Opportunistic M&A:
- Kogan has a track record of achieving value accretive acquisitions.
- It can use current infrastructure to generate operating leverage.
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Strategic Acquisition Model:
The management at Kogan.com has a strong track record of acquiring and incorporating iconic Australian retailers like Dick Smith and Matt Blatt. Below is the highlight of Kogan’s business model:
- Attractive acquisition opportunity.
- Effectively integrate the newly acquired brand into the platform.
- Visible and robust relaunch as a pure-play online retailer.
Future Opportunities:
- To acquire brands or retailers that operate online and has strong synergies.
- Improve current capabilities & platforms through acquisition.
Business Risks:
In the investor presentation, the company highlighted that it needs to take extra care during the COVID-19 pandemic while accessing the risks of an investment seeing the considerable volatility in the market.
Some of the business risks includes:
- COVID-19 and the adverse impact on the supply chain.
- Overall market conditions.
- Most of KGN’s products are discretionary goods. Thus, sales levels are sensitive to customer sentiment. The products offered and the financial and operational performance can be impacted by changes in consumers’ disposable incomes, their preferences concerning the use of their disposable incomes.
- Service providers, key suppliers, and counterparty factors.
- Political, economic, or social instability.
- Manufacturing and product quality.
- KGN’s websites, databases and operating systems functioning is key to business success.
- Marketing strategy.
- Organic search results ranking.
- Increase in the cost of, or reliance on, search engine marketing.
- Data loss, or theft.
- Change in technology and many more.
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Conclusion:
The rise in the number of active customers and sales figures have played a significant role in the Company’s financial performance and the impressive share price gains in the past six months.
The change in customers’ preference towards online transactions, coupled with the Company’s strong track record of acquiring and incorporating iconic Australian retailers, gives confidence concerning its position in the upcoming period.
