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#Kogan still needs to show its
Added 3 months ago

Based on the chart, I think it needs to be north of $5 to be breaking up and hope Mr Kogan doesn't drop a big load of stock again.

8bceefe5692d2e2853b1ff3ea7a67cdf086596.png

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#ASX Announcements
Added 3 months ago

Kogan share price pops 9% on promises of return to previous margins once sell through is complete.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02602484-3A607897?access_token=83ff96335c2d45a094df02a206a39ff4

However, the data at this stage is heading in the other direction but let’s wait and see.

Based on todays data and share response it’s still a fan favourite and the first sign of position data and the share price could go crazy.


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#ASX Announcements
Added 4 months ago

Kogan have just released their quarterly business update. Highlights are:

Inventories reduced to $132.1 million (comprising $109.3 million in-warehouse and $22.8 million in-transit) as at 30 September 2022, from $159.9 million (comprising $137.9 million in-warehouse, and $22.0 million in-transit) as at 30 June 2022.

○ The sell-through of inventory, and tight controls on costs, has supported the growth of our net cash balance (after loans & borrowings), ending the quarter with $23.8 million.

  • ● Gross Sales declined 38.8% YoY to $202.3 million, while cycling a period in the prior year that included lockdowns
  • ● Group Active Customers declined 12.3% YoY to 3,596,000 as at 30 September 2022
  • ● Kogan First Subscribers grew by 48.8% YoY to 385,000 as at 30 September 2022
  • ● Kogan Mobile2 Active Customers grew 5.1% YoY as at 30 September 2022
  • ● Gross Profit declined 40.4% YoY to $31.3 million, impacted by lower Gross Margins following the accelerated sell-through of excess inventory the vast majority of which the Company expects to complete by early calendar year 2023
  • ● Adjusted EBITDA was $(0.3) million
  • ● Adjusted EBIT was $(4.1) million


Held IRL and SM - It will be interesting to see how sales track with focus on reducing inventories coming under control.

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#Bear Case
Added 6 months ago

The Kogan spin continues…more of the same “excuses” being rolled out. At what point does management acknowledge they may need some new people at the top to right this ship?

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#ASX Announcements
Added 6 months ago

I can’t help but get the feeling that KGN is in a bit of trouble…

It’s certainly not the online store I look to when thinking “Where can I order *insert item here* online ?”

Whilst Ruslan remain optimistic I’m not convinced increasing the Kogan Tax (Kogan First) is going to fix things - I would have thought this will just lose a whole bunch of subscribers….


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#ASX Announcements
Added 6 months ago

KGN has seen revenue decline 8.0% to $718.5 million, reflecting a compound annual growth rate (CAGR) of 20.1% since FY20 and gross profit decline 9.3% to $184.4 million, reflecting a CAGR of 20.7% since FY20. EBITDA was $(21.8) million in FY22.

KGN stated, that as the Business works through a period of consolidation to return to growth in profits, the Board has decided to not declare a dividend.

As is consistent with KGN through the years, the company will not be providing earnings guidance for FY23. However, it will provide regular business updates during the year. KGN is declaring FY23 with a positive outlook. KGN is looking forward to the continued expansion of Kogan Marketplace including the anticipated launch of an advertising platform, the roll-out of enhancements across Kogan Verticals, further growth of Mighty Ape, growing Kogan First Membership as they head toward their medium-term goal of 1,000,000 subscribers and continued strong contribution from their Exclusive Brands Division. The Business also stated that it looks forward to returning to positive operating leverage, having commenced the process of driving efficiencies in operating costs and product ranges which has led a return to Adjusted EBITDA profitability in 4QFY22. July 2022 unaudited management accounts showed Group Adjusted EBITDA of $1.5 million and operating costs reducing by 19.3% year-on-year following ongoing efficiency improvements.

Ruslan Kogan said:

“For more than 10 years, eCommerce grew in Australia at a consistent and stable rate. This enabled Kogan. com to plan for growth in a measured and precise way.

The consistency of this growth was rocked by the onset of the COVID-19 pandemic, when customers turned to Kogan.com, and we found that — almost overnight — our business started to double in sales. Kogan. com quickly became the destination that millions of Australians relied on for the most essential items. This acceleration of sales continued for many months in the first year of the pandemic, and we bet that the trend was not going to stop. To ensure we could be there for our customers when they needed us most, we increased both our range and volume of inventory, as well as our logistics footprint to match this expected level of growth.

We were wrong. As the true volatility of the situation settled in — caused by stay at home orders and lockdown ambiguity — eCommerce did not continue to grow as anticipated. This led to us holding excess inventory, and an associated increase in variable costs and marketing costs to sell through the inventory. As we’ve discussed at length through regular updates this past year, profitability in FY22 was impacted. 

When I started Kogan.com 16 years ago, I made a bet that online shopping would define the future of retail. My certainty of that is even stronger today than it’s ever been.

The simple fact is this: More Aussies and Kiwis will be online shoppers tomorrow than today. Millions of customers are discovering the benefits of shopping from the comfort of their homes, and having a huge range of products delivered to their door at great prices.

This is what our team has always obsessed over: delighting customers by making the most in-demand products and services more affordable and accessible. We were pleased to have this hard work recognised when the Australian public voted Kogan.com, for the fifth time running, the Australia Post ORIAS People’s Choice Retailer of the Year.

In order to continue to deliver this outstanding service, we need to increase the cost of access to Kogan First going forward. With the ongoing increase and evolution of subscriber benefits, as well as the impacts of inflation in delivery costs, the price of Kogan First will be increasing to $79.00 per year. We will continue to enhance the benefits our Kogan First members get with ongoing investment in the program.

We’ve right-sized our business, optimised for efficiency, and we’re pleased to see eCommerce adoption start to normalise and return to its steady and continued growth. As always, we will continue to deliver unbeatable value for our customers.”

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#Short squeeze for KGN?
stale
Added 7 months ago

Share price currently up 50% today following a business update from KGN. https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02546444-3A597966?access_token=83ff96335c2d45a094df02a206a39ff4

According to shortman.com over 8% of KGN shares on issue are shorted. Which equates to approximately 8.5m shares. Making it the 7th most shorted stock on the ASX (as of 4 days ago).

Perhaps the update caught the shorters by surprise. Todays trading volume was 5.7m shares. Looks like shorters closing out their positions.

Disc. Sold out today in RL and SM (after holding for way too long)

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#Management
stale
Added 7 months ago

Absolutely Bear,

Looking at the announcement the move of inventory held from $227m last year to $161m as of June 30th 2022 is a key driver especially considering the build up inventory of major US retailers such as Walmart and Target etc.

Could be that Kogan was ahead of the curve in this regard and takes 12months to cycle through

Time will tell



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#July 2022 Business Update
stale
Added 7 months ago

28-July-2022: KGN-July-2022-Business-Update.PDF

Now, have a read through that and tell me if it justifies a +43.77% share price lift. [so far today]

09839e4a97e6edc13c2756744335a83e5c672d.png

Sure it's clear that the market was [previously] pricing in worse than the actual reality and there has been some sort of relief rally, AND they're clearly coming off a very low base now, so big percentage movements don't take them back up too far compared to where they have come from... but... surely there's something else going on?


Disc: I do not hold KGN shares.

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Valuation of $9.05
stale
Edited 9 months ago

Valuation $9.05

Assumptions they can reach $3 Billion Gross Sales in FY26.

Assume Net Margins of 4% (Amazon ~5% as a group)

Earning per Share in FY26 of 0.58 cents

PE 25 Discount 10% back to today gives me $9.05

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#Quality and customer satisfact
stale
Added 10 months ago

I've never looked seriously at the financials for Kogan because I've been turned off by their quality, my own negative purchase experiences, and their poor customer satisfaction. It's a sad experience searching for Kogan and its products on ProductReview. 3.6/5 overall for Kogan, 3.2 for Kogan mobile, 3.7 for Kogan internet, 1.5 for Kogan credit card, 2.9 for Kogan tv, 3.3 for Kogan airconditioner. And (disclosure: patronising moralising about to occur) I also whiff questionable ethics in their marketing which is extremely heavy and has at times been illegal. Then there's the executive remuneration . . . Just has never been a company I'd be proud to own.

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#Industry/competitors
stale
Added 10 months ago

As I wrote earlier (in an EML post) KGN was number 1 conviction pick for a mfoolish desperate attempt to appease 5G super hype losers. As a user I have bought more things than I can remember from Kogan. And I have gas and electricity with them. Their customer service when you complain is fantastic. Their comms during the sale to delivery process sucks. Think Ubereats or jimmybrings with the map track. Even AusPost has brought in a two hour delivery window now (finally). Kogan kinda doesn't do that. My main concern is if I want something I can go multiple places. My other concern is if Ruslan pulls the pin.

Oh yeah. "Active user" I'm probably one because I get their emails. Delete 95% unopened. No $ here from me.

Still have gas and electricity with them though...

And if my TV explodes I will only buy from Kogan.

Interesting company

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#from bad to worse
stale
Added 10 months ago

The hard thing about something like Kogan is that every time you get some disappointing news, and the price plunges lower, you can rationalise it by saying that the news, while negative, is NOW more than reflected in the price, and that none of the issues are structural in nature. ie. they are short term issues that distract from a much more positive longer-term trend.

That might be true, and maybe this latest decline will prove to be a wonderful buying opportunity for longer term investors.

After all, revenues have more or less doubled in the last few years and despite the recent dip in quarterly gross sales, the business has grown sales by almost 20% per annum since Q3 FY20 (and maybe that's a fair period to benchmark things given the covid bump that was experienced in the prior year).

On the other hand, a lot of categories are going backwards -- even over a 2 year annualised basis (eg Advertising, mobile and third party brands). And if you strip out the Mighty Ape acquisition, gross sales have only grown at an annualised rate of 11% since Q3FY20.

On top of that, costs have increased substantially, such that the business is now loss making on an adjusted EBITDA basis. To be fair, a lot of these investments may not have yet had time to bear fruit, but it does underscore concerns over what operating margins look like at scale -- especially in the face of intense competition (Amazon), rising costs pressures and stagnating wages.

Let's annualise the latest quarterly gross sales numbers and apply an *underlying* net margin of 2%. That gives us NPAT of $21m, which puts shares on a PE of roughly 21. I'm not sure that's necessarily cheap for a business that is struggling to find growth (active customers were up only 3.6% yoy), especially in a rising interest rate environment.

Of course, perhaps they can resume sales growth and return to much healthier net margins. For example, we could assume FY gross sales of $1280m if we pro-rata the first 9 months of the year, and apply a 3.6% net margin (what they got on an underlying basis FY21). That'd give a FY *normalised* NPAT of $46m, and that would put shares on a forward PE of less than 10. Cheap!

I'm just not convinced they can deliver solid organic growth and achieve decent margins. Even if you assume 10% top line growth for the next few years, a 2% net margin and a PE of 16 -- you get a target price of just over $5, and that's an annual return of less than 10% from current prices.

This is not a business that is going to zero, far from it. I just find it hard to gain any real conviction and think the best days of growth are over. I think shares are, at best, around fair value.

I could well be wrong, and it's worth remembering that profit assumptions change a LOT if you apply a higher margin (eg if you assume a 3% net margin instead of a 2% one in my example above, you have a FY25 target price of $7.64! -- all else being equal)

So i get the Bull case, but it's just in the too hard basket for me.

You can read the recent quarterly update here

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#Alas
stale
Added 10 months ago

Alas poor Kogan…

Have to expect the rot to continue now based on the latest results.

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#kogan
stale
Added 12 months ago

DISC: Held IRL and SM

Will continue to hold, mostly for the reason I can best describe as "I have made my bed now I must lie in it".

While it is tempting to assume that their meteoric revenue growth has stalled permanently and their margins won't get back to what they were previously. I'm prepared to give them the benefit of the doubt due to:

  • The (even now, still) unprecedented times they operate in.
  • The staggering growth they went through in 2020 - which affords the the time to "take a breather" and re-adjust, I think.
  • A solid track record of online retail dominance in Australia
  • Ruslan Kogan's 15% stake in the company (where we go, he goes)


So, I am prepared to give them 2 years from here to get revenue growth back above 15% and net profit margins above 3% and only then will I sell.

Now I could easily be wrong, and the best course of action could be to sell now and put the money in something in which I have higher conviction (which is very tempting - my spidey senses tell me that Amazon might just wipe the floor with them). But I feel I need to draw a line with myself - I can't be flip-floping just because they have hit a hurdle and market sentiment has gone against them. So I hold.

However, even if they fail I still win, I win because of the lessons I have learned:

  1. Consumer Retail is hard - you can't just double your sales without thinking about logistics and associated costs.
  2. If I buy a stock and it triples in 6 months - I should reassess it's value, be very critical if it can be justified, and consider trimming or selling (as opposed thinking I'm such a smart boy, patting myself on the back, and just assuming it will continue to moon).





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#Risks
stale
Added one year ago

@Rick. Ruslan's remuneration? Pretty high compared to Woolies CEO etc. Shareholders general distaste/rejection of remuneration proposals etc. Check out todays COB on Ausbiz

https://www.ausbiz.com.au/media/the-call-monday-29-november?videoId=17520


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#Margins
stale
Last edited one year ago

What’s happening with the Kogan share price after the AGM presentation yesterday. Gleaning the the report there wasn’t one chart that didn’t show a strong upwards trend! Maybe that’s because they didn’t include a chart for operating expenses.

James Mickleboro from the Motley Fool has done a little digging into the adjusted EBITDA so far for FY22 and it’s not sounding promising:

”There appear to have been a few catalysts for the volatility in the Kogan share price on Thursday.

One was its trading update. Although Kogan spoke about further revenue growth during the first four months of FY 2022, this hasn’t translated into profit growth.

Kogan revealed that its adjusted EBITDA (including Mighty Ape) was down 61% year to date to $12.4 million. Excluding Mighty Ape, adjusted EBITDA was down 70.3% to $9.5 million over the prior corresponding period.

Given that Kogan reported adjusted EBITDA (including Mighty Ape) of $10.8 million for the first quarter, this means it only added $1.6 million of EBITDA in October. That compares to a first quarter average of $3.6 million per month. And this is despite the company advising that it had resolved previous inventory pressures during the first quarter, reducing warehousing costs.”

b47d75d6e57a1f53092c24917a0f26b4deb45d.png

So what do we make of this? Are profit margins getting squeezed? Something to watch out for in the 2H22 report.

Disc: Shares held IRL and SM

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#Q1 FY22 Business Update
stale
Added one year ago

Update release today (attached), some highlights and notes:

·        Gross Sales $330.5m (+21.1% YoY, +23.2% QoQ)

·        Gross Profit $52.5m (-1.7% YoY, +31.6% QoQ).  Gross margin of 15.9% is up on last quarter 14.9% but down on last year 19.6%

·        Adj EBITDA $10.8m – probably worth ignoring as there is a note in the fine print that there was a significant increase in share based compensation for the quarter which is excluded. The good news is there is some improvements in inventory levels and warehouse costs ($0.8m savings), seems like they still have problems but are getting on top of it. EBITDA margin of 3.3% is up on last quarter of 1.2% but down on last year of 9.2%

·        Active Customers 3,351k for Kogan (+144k or 4.5% QoQ which is solid) 748k for Mighty Ape (-16k or -2.1% QoQ, a variance not highlighted).

·        Marketplace gross sales of $110.4m, up from 65.4m in Q4 FY21 and 73.7m in Q1 FY21 is a good sign, as is the increase in Kogan First with sales up to $5.9m from $2.5m last quarter and membership up to 197k which is 64.4% up on last quarter.

 

As usual we get a clear focus on anything good, but even reading between the lines it was a solid result and showing a recovery from a bad H2 last FY. 

I have trimmed my KGN position but still see opportunity if they can get the execution right.  The current turmoil in supply chain and buying patters is an issue for everyone so I am prepared to cut them some slack in dealing with it.

View Attachment

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#Business Model/Strategy
stale
Added one year ago

It has been interesting to watch the flurry of valuations and the differences between those valuations. This is what makes a market.

Kogan has been compared to Amazon, indeed Strawman's own straw and valuation mentioned Amazon keeping the screws on. I wrote about Amazon in a JB HiFi straw couple of weeks ago, it is worth repeating here. They are still loss making and have not dented the Australian market to nearly the extent their thesis (and analysts) anticipated. That said, on line sales continue to increase the wallet share. 

On to Kogan. What I am about to recite I believe is from Maister book True Professionalism – just because your customers know and trust you for one product/ solution, does not mean that they will for another product/ solution. 

And Kogan is attempting to be a one stop shop. I understand it. Where there is a dollar on the table, don’t leave it there. TV’s to insurance to NBN.

Ruslin seems to be everywhere. I’m sure I have heard him on at least three recent podcasts. He appears to be articulate, passionate, and driven.

He started bringing in TV’s – there are only a couple of panel manufacturers – drawing a long bow that means the quality is all the same. The big difference is this is not accurate, and the surrounding componentry plus the brand backing to provide after sales service does matter.

On after sales service, just search to see disparaging reviews, again acknowledging reviews can be biased.

Retail is hard. Retail is low margin. Is Kogan going to still be here in another 5 years. I vote yes. Is Kogan going to be larger and serving a greater market share. I also suspect yes. Are there better risk v reward propositions? This one also gets a yes.

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Valuation of $16.00
stale
Added one year ago
Difficult to understand what the ongoing affect to Opex is from the Mighty Ape acquisition and the inventory issues however have done my best. I think this valuation is relatively conservative although assumes Kogan continues to be a dominant (and growing) player in online retail. 2026 Price: $26 discounted at 10% => 2021 Price:$16 How I got there; Revenue: I've assumed 2022 revenue to be the same as 2021, and then grows 20% YoY to 2026. Opex: I've assumed Opex effectively remains flat to 2023, then increases 10% a year. =====>Revenue 2026: $1.6B GP margin of 25% => GP 2026: $400M Opex 2026: $250M Assuming share growth 2% YoY and P/EBITDA of 20x => Share Price 2026: $26
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#Bull Case
stale
Added one year ago

Even though Amazon have only been in Australia for a short while, I believe as more consumers transition  to online shopping their is room for a number of players.

I dont believe winner takes all in this case, every company seems to need a nemesis.

Coke vs Pepsi

Afterpay vs ZIP

Visa vs Mastercard

Apple vs Microsoft and so on.

I'm happy to continue to hold Kogan, even though i expect volatility. 

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#Save_some_time_screen_manageme
stale
Last edited one year ago

It may seem harsh but I don't consider Kogan to be investable. This is due to the self-largesse of management and what I would regard as questionable accounting (in the classification of one-offs) to support that largess. There are plenty of other companies out there to choose from that don't have this issue. Thus I'm not inclined to consider a valuation but rather to simply look elsewhere.

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#Bull Case
stale
Added one year ago

Broker Upgrade

Credit Suisse - Outperform PT $14.06

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#Business Model/Strategy
stale
Added one year ago

Lots of good coverage on the numbers already.

I don't hold KGN on Strawman but have in my real world portfolio for a while. I've decided to sell out after these numbers after there is a bit of a bottom feeding bump.

Why? Retail is a tough hunting ground, and Kogan has had lots of promise and growth so far. As it matures the experience of the customer becomes far more important to keep people coming back. As a customer, I have to compare it to the Gorilla in the room, Amazon. 

Kogan has always had a reputation as a bit cheap and nasty, but I always put up with it because it's too cheap to ignore. Customer service has always been a bit hit and miss, and to be frank, the few times I've had to call or email them, I've given up.

Contrast to Amazon AU, who I've joined as a Prime subscriber recently after buying on and off from Amazon US since the early 2000's, and the customer service experience has been orders of magnitude better than the local competitor. Had a parcel go missing after arrival in Australia from the USA and being lost by the courier, and after a quick phone call, it was refunded no questions asked. Contrast that to the well documented experience of Kogan being hit and miss, and I am pretty set on where my consumer dollars are going.

The Gorilla has far deeper pockets than Kogan does, and more than likely will be the dominant player. Even if there is upside in the share price, my capital is better deployed elsewhere.

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#Overview
stale
Last edited one year ago

I think Kogan -- the company and the founder -- are both very impressive. Founded only 15 years ago, it now does over $1 billion in annual gross sales. Moreover, since listing, that growth has been largely self-funded, while still delivering a decent profit (and dividend!) along the way.

Despite this growth, Kogan reckons it has around 2.7% share of online retail. Indeed, online retail as a category is only 13% of total retail trade is Australia -- and growing fast.

In the latest year it suffered from some stock provisions, and increased logistics costs due to covid, and there were some one off costs with stock compensation and associated payments, but on a 'normalised' basis this is a business that has grown NPAT 3-fold in 3 years.

And on adjusted EPS numbers the business is trading on a PE of ~30. That doesn't sound too bad, given the growth and market opportunity. It's surely a lot better than the PE of 60 it was last year.

But i worry if it may be less of a bargain than it seems.

First off, if we're going to 'adjust' some costs due to covid, we should surely adjust for some of the benefit too. Covid has helped accelerate online sales growth and no doubt brought some spending forward too. Revenue in FY21 was up 56%! It's hard to know what growth would have been like in the absense of covid, but it's something to keep in mind when looking at the PE.

But the real question for me is to what extent Kogan can keep growing. At maturity -- which is doubtless still a ways off -- this is a low margin, volume sensitive retailer. It'd likely trade on a PE multiple of much closer to 15 (more mature retailers like JBH and HVN are both ~12 at present).

And it's facing off against one of the most powerful businesses on the planet.

Amazon, which entered Australia in 2017 (10 years ofter kogan), and already has around $1b in annual revenue -- roughly 20% more than Kogan -- and Morningstar have them reaching $9b in revenue in Australia by 2025. That would be about 20% of all online trade.

There's no guarantee in that forecast, and I definitely think there's room for both players. Even if Kogan doesnt increase it's market share, and instead only manages to hold steady at 2.7% market share -- the market itself is growing pretty fast.

But Amazon will certainly cap Kogan's prcing power. History has shown that Amazon will happily cede margin if it means gaining market share. And huge logistics investments from Amazon will require kogan to keep up if it hopes to match Amazon on delivery times.

It's all very hard to predict, and i'd want a pretty big margin of safety before I bought. See my valuation.

Not held.

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#F21 Results
stale
Last edited one year ago

Links not available to post yet - but I am looking forward to the explanation of why logistics charges are being delt with as a one-off.

I don't think it is right to trumpet exceptional Sales and Revenue, and then hide what it took to achieve that.

  • Gross Sales2 up 52.7% to $1.179 billion (FY20: $772.3 million3), and a CAGR4 of 46.2% since FY19
  • Revenue up 56.8% to $780.7 million (FY20: $497.9 million), and a CAGR4 of 33.4% since FY19
  • Gross Profit up 61.0% to $203.7 million (FY20: $126.5 million), and a CAGR4 of 49.9% since FY19
  • Adjusted NPAT5 up 43.2% to $42.9 million (FY20: $30.0 million), and a CAGR4 of 51.8% since FY19
  • NPAT down 86.8% to $3.5 million (FY20: $26.8 million), reflecting one-off inventory, logistics and
  • Mighty Ape acquisition costs
  • Adjusted EPS5 up 27.2% to $0.41 per Share (FY20: $0.32 per Share), and a CAGR4 of 42.8% since
  • FY19
  • EPS of $0.03 per Share, down 88.3% on prior year (FY20: $0.29 per Share), impacted by a
  • number of items detailed below
  • Kogan.com Active Customer base up 46.9% (excluding Mighty Ape) to 3,207,000. Mighty Ape
  • Active Customers grew to 764,000 at 30 June 2021
  • Net cash at financial year end (total cash less drawn debt) of $12.8 million

 

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#Bull Case
stale
Added 2 years ago

Although Kogan reported recently issues with buying too much inventory and said that they would need to to sell it at the discounted prices which hurt the margins I think they had enough to take the advantage of the current COVID-19 situation where most of the major cities our in a lockdown.

This should help them increasing the revenue in a short period of time and get rid of inventory. If the discounting is used in a right way they should attract new customers who should then repeat in the future helping revenue in the future as well.

I don't believe the share price will get crazy as it did last year but it might help Kogan to gain a bit of a momentum. Happy to give it a go. 

 

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Valuation of $12.75
stale
Added 2 years ago
Suspect the market overvalued Kogan with excitement in 2020 and has now undervalued it slightly in 2021 with its inventory issues. I like the company is profitable and their hitting current forecasting. As COVID ‘at-home’ spending adjusts to normalised growth, online retail is still expecting a boost over the medium term. Kogan will be a large part in that.
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#Kogan web traffic
stale
Added 2 years ago

With the eastern seaboard locked down I have been interested in the web traffic for Kogan. Up 6.5% from June to July 2021. Similar for temple and Webster up 8.4% over the same period 

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#Short positions down 32%
stale
Last edited 2 years ago

The Kogan share price has climbed 9.2% over 5 trading days. While I'm pleased to see the uplift I'm not sure what is driving it. It could be due to short sellers closing out on positions.

Short positions have dropped from 12.85% (26 May) to 8.73% (30 July), a 32% drop in 2 months. The move to close out on shorts could in itself be self-perpetuating, and could drive the Kogan prices even higher, at least until we see the 2021 FY results!

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Valuation of $10.38
stale
Added 2 years ago
3/08/2021 valuation: Analysts forecast earnings for KGN are less optimistic than 3 months ago (Simply Wall Street data): 2021: $16 million 2022: $31.6 million (average 6 analysts) 2023: $43.5 million (average 5 analysts) 2024: $77 million (1 analyst) In comparison, 2020 earnings were $26.8 million. Assuming Value = E X PE Value (2023) = $43.5 million / 107 million shares X 25^ = $10.16 ^I am using a PE of 25. I think this is reasonable given: - historical annual average PE for 2019 and 2020 was 25. - Analysts forecast annual earnings growth over the next 3 year is 26.8% and - forecast ROE of 30% over next 3 years. Discounted @ 10% per year = $10.16 X 0.8 = $8.13 If we use the forecast 2024 earnings and the same methodology as above, the valuation is $12.60. If you take the average of the 2023 and 2024 valuations = $10.38, which is similar to the current price. Until Kogan can demonstrate it has returned to high earnings growth, I think we will continue to see pressure on the Kogan share price. Disc: Held May 2021 valuation (previous) 2023 forecast Earnings = $63 million (5 analysts) Shares outstanding = 103 million 2023 EPS = 63/103 = 61c per share Average annual PE 2020 = 24 2023 fair value = 24 x 0.61 = $14.64 Justification of PE of 24: 2020 earnings = $27 million 3 yr Annual earnings growth = 30% PEG = 24/30 = 0.8 (less than 1)
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#FY21 Business Update
stale
Added 2 years ago

Smoke and mirrors from Kogan today on the business update (attached), in promoting a good year (+56% Revenue, +60% Gross Profit, +23% “Adjusted” EBITDA) it hides a not so good second half.

 

What the announcement didn’t highlight:

·         Revenue down 32% Half on Half (HoH) for Kogan brand, Mighty Ape was only added in December so HoH not comparable, but it added 60m in H2 Vs 20m for one month of H1 all be it the high sales month of December, I would expect better.

·         Active Customers: up 7% HoH for Kogan and 6% for Mighty Ape, which is solid, but Kogan customer growth rate for FY21 is 47%, so a significant slow down on the rate of growth from H1, but that rate of growth was very Covid impacted and not long term sustainable.

·         Gross Profit for Kogan down 37% HoH which is worse than sales, resulting in GM% dropping from 27.3% in H1 to 24.7% in H2.  FY is a solid 26.2% but supply chain and the need to discount to clear excess stock is clearly impacting margins.

·         Adjusted EBITDA: Firstly note this excludes equity based compensation (which is normal), material logistic demurrage charges (which is part of business for a import wholesaler as far as I am concerned) and inventory write-downs (also part of business).  Overall growth of 23% YoY is highlighted but take out Mightly Ape (which wasn’t in last year) and you are left with 5% growth, because Adjusted EBITDA for the Kogan brand was down 95% HoH from 51.7m to 2.5m in the second half.

·         Inventory – “Following the end of the second half, the Company can now say that the efforts to bring down levels of inventory have come a very long way, and inventory is approaching the right level for the business.” The figures tell a different story, at the end of H1 Inventory was 225.3m and was a blow out, it is now “approaching the right level” and is 228.1m yet revenue has dropped 32% HoH… What the Kogan!

·         Cash – They started the half with $76.2m in net cash and finished with $12.8m… No comment on that in the statement.  The only hope is that this is a result a reduction in the blow out in Accounts Payable reported at the end of H1 and that we will see high inventory levels convert to cash in the next half.

 

I continue to hold KGN, but will need to update my valuation as soon as FY21 figures are released in full.  Indications from this announcement are that it is most likely a downward valuation revision.  The real concern is the cash position and a possible need to raise capital, but I suspect that if Kogan was going to do that they would have done it prior to releasing these figures…  

 

Nice to see them actually put some figures in their update this time following the ASX rebuke of their last business update – blood from a stone

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#Is short activity over?
stale
Last edited 2 years ago

Kogan short activity peaked at 12.85% on 26 May and has declined to 11.4% on 21 June. Kogan shares shot up 6% today. Is this a sign that shorters are scrambling to cover short positions? If this is the case it will be interesting to watch the Kogan share price over coming weeks.

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#Has Kogan caught COVID?
stale
Last edited 2 years ago

A summary of Kogan's announcement below. It appears Kogan's growing pains have turned out to be a fully blown case of COVID. While KGN it is likely to survive and prosper in the long term, the short term outlook is grim. With Updated EBIDTA lower than analysts forecast, and a suttle warning that things could get worse, I don't see any rush to buy shares at the moment. I think it's a hold for now. I think the shorters had it right this time.

  • KGN doubled in size over first half of FY21
  • operational challenges as a result of growth
  • KGN significantly expanded its inventory holding, and also expanded its logistics footprint to 31 facilities
  • rapid expansion has resulted in a number of near-term chain inefficiencies and inventory planning challenges
  • During the month of April, the demurrage issue that the Company was experiencing was resolved.
  • imposed significant abnormal costs on the business over the past five months. 
  • KGN built up its inventory levels from late 2020, which has caused high warehousing costs that are continuing.
  • KGN progressively working towards optimising the inventory position to reflect current market conditions
  • increasing promotional activity has led to lower near-term gross margin and higher near-term marketing costs.
  • Kogan.com is expected to return to normal inventory levels (relative to the size of the business) and marketing spend as the current inventory is progressively reduced over the coming few months.
  • cost price inflation of many consumer products is being observed in respect of products that are currently being planned for reorder in advance of the peak Christmas trading period.
  • price inflation is being driven by COVID-19 market dislocations, together with inflation in international shipping costs.

Short-term Outlook

  • KGN expects underlying operating performance to continue to be challenged in the near-term, and Adjusted EBITDA for FY21 is likely to be lower than analyst forecasts 
  • FY21 Adjusted EBITDA1 expected in range of $58 million to $63 million (based on unaudited management accounts to April 2021) but warns of a highly dynamic trading environment with trading conditions subject to continual change.

Long-term Outlook

  • fundamentals for Kogan.com remain very attractive given the Company’s position in the Australian and New Zealand online retail markets, and with online retail sales currently only accounting for a small percentage of total retail sales in Australia and New Zealand.
  • KGN has invested in key strategic initiatives and has a strong level of in-demand inventory heading into the first half of FY22
  • The initiatives put in place to address the rapid scaling of a large eCommerce company are expected to drive continuous customer experience improvements in FY22
  • KGN has learnt valuable lessons over the last few months, including many key strategies on how to better scale operations of a large fast-growing eCommerce company.

Disc: hold shares (Ouch!)

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#KGN now 10% shorted
stale
Added 2 years ago

KGN is now number 3 most shorted stock on the ASX with 10.1% shorted on  Shortman. What does this mean for long term value? Absolutely nothing in my experience. JBHIFi was highly shorted when it was under $20. Today JBH is trading at over $47. This could be another opportunity on offer by Mr Market!

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#Q3 Update
stale
Added 2 years ago

Kogan has been asked by the ASX to provide more transparancy on it's Q3 update - fantastic to see the ASX pushing on this point, KGN needs to be more opaic.

Details attached:

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#Q3 Update
stale
Added 2 years ago

Well the market didn’t like KGN’s update this morning, down around 10% currently, a hit to EBITDA and ok not great growth seems to be why.

 

3QFY21:

·         Gross Sales +47% (solid but slower than +96% for H1)

·         Revenue +65% (higher than Gross Sales due to Kogan Market growth)

·         Gross Profit +54% (indicates lower margins)

·         Adjusted EBITDA -24% (Ouch… Inventory storage and increased promotional activity, so possibly timing rather than systemic)

·         Active Customers +77%: 3.2m Kogan (up from 3.0m at the end of H1), 742k Mighty Ape (up form 716k at the end of H1) – good growth here.

 

A typical release from Kogan, a strong focus on the positive.   I would have liked to see stronger sales growth but customer growth looks good for what is a soft quarter for retail normally.

In all I expect my FY21 sales and EBITDA estimates are overstated in my valuation, but it would take continued evidence of inventory issues and margin pressure for me to re-assess my overall valuation.  I continue to see the business as undervalued over the long term.

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Valuation of $22.00
stale
Added 2 years ago
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#Valuation Detail
stale
Added 2 years ago

Valuation details from my Feb valuation in response to CHill's great valuation model.  Discount rate and terminal growth rate variances are the only significant points of difference.

I maintain my view on valuation at $39.04, based on the attached.

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#Business Model/Strategy
stale
Added 2 years ago

Attempt #2 of posting my conservative DCF for Kogan attached. Fair value $16.22.

Let me know your thoughts!

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Valuation of $16.22
stale
Added 2 years ago
Conservative DCF. See straw.
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#Bull Case
stale
Added 2 years ago

I see this as an opportunity to add more of the largest Australian online retailer which is trading well off it's earlier highs and well below consensus.
Sells both branded and private-label products; also sells a wide array of services including mobile, NBN/Internet, health insurance, and energy.
Consensus price target of ~$18.00
Utilising technology to build a low-cost operation that works at scale. That’s a competitive advantage, which once established can be a powerful moat around the business for years to come. 
1st half results were strong with gross profit growth of 175%
 

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Valuation of $39.04
stale
Added 2 years ago
Kogan is down 10% today (26Feb21) on H1 FY21 results, a victim of the general sell down more than the results I suspect, but cash flow results wouldn’t have been taken well. I have updated my valuation for these results and also adjusted for the purchase of Mighty Ape, but first a quick look at the results: Notes on H1 FY21 Results: • Inventory is up a lot (double in the half), which was explained as an investment in growing customer demand… This lead to working capital being up 3x in the half from $35.8m to $100.0m which explains much of the negative Operating Cash result of -$23.4m form +$17.4m in the PCP. I see this as a one off, but something to monitor. • Operating leverage continues to strengthen with margins (+126%), EBITDA (+132%) AND NPAT (+164%) growing faster than Revenue (+87%). • Customer growth of 76% YOY to 3m for Kogan.com (thanks to Covid) plus Mighty Ape adds another 790k in NZ to give Kogan a massive customer base to tap with an expanding range of products. • Mighty Ape: bought on 3 December, only 1 months of sales (A$20m) and EBITDA contribution (A$2.9m) are included in H1 FY21 results, we can’t expect 12x this because it was the high selling December month, maybe 8-10x and growth on that going forward. • Directors: Kogan has been an innovative and growing company based on it’s leadership, this will continue with even greater depth now with the appointment of two new directors, Janine Allis (Boost Juice) from 1 March 2021 and James Spenceley (Vocus, Airtasker) from 1 April 2021. • Marketing was pushed hard, spend up 251.7% Vs PCP, leading to customer acquisition costs going up from $17 to $28 and free web traffic has dropped from 75% to 67% from PCP. • Kogan Marketplace gross sales increased 194% on PCP and revenue grew 140% from $5.5m to $13.2m, this will have helped gross margin% because there are no COS, which lifted a massive 4.5% form 22.7% to 27.3%. It also explains why Gross Sales grew faster than revenue, 97.4% Vs 88.6%. Valuation Context: I am bullish on Kogan as a business because it has a fantastic combination of factors that promote rapidly growing cashflows. These are: • Operating leverage of the business model, as shown in the results and with increased operating leverage (and margins) likely as the Kogan Marketplace grows. • Additive business model and leadership innovations mean that revenue grows faster than customers, as more products are sold to existing customers – basically land and expand. • Capital lite’ish – warehouse capacity and inventory holding requirements are lower than bricks and mortar retail, but moves into service products (Energy, Credit cards, etc) and increased marketplace revenue improves ROC and lowers risk. • Leadership – Russel and David can be a mixed blessing at times, but they have plenty of skin in the game, know how to grow the business and make money. Also, I like founder lead businesses, and the new board appointments are a plus in my view. • Competition is a persistent issue, but the business has grown through it and I back the leadership to meet future competitive challenges, even if Amazon pushes hard. I think Kogan’s discipline and attention to detail which reduces COGS will protect margins even with mounting competition. Exclusive brands make up 56% of gross profit, marketplace 12% (and growing) with third party brands only 16% - they are not relying on sales of commonly available brands which kills retail business margins. Valuation (DCF): Sales for FY21 I forecast to be up 81% YOY, which only requires flat H2 sales for Kogan and a full year of Mighty Ape to achieve. I then assume 15% growth from FY22 reducing to 5% by 2030 mostly in a straight line to give revenues of $2.15b by 2030. I rate this as a very conservative sales projection. Gross margins I expect to improve as Kogan Marketplace grows and commission type products which have 100% margin grow as a proportion of sales. FY21 GM% of 27.5% increasing to 32.0% by 2030 (straight line). Again, this is not a big ask, it’s less of an improvement than what happened just last year. Cash Selling, Distribution and Warehouse costs I have growing 3% slower than sales, admin costs growing at 5%. Operating Expenses as a % of sales improve from 17.2% FY20 to 9.9% FY30. I think this under does the operating leverage and scale benefits, but this still results in a healthy EBITDA% of 22.8% by 2030 up from 9.4% in FY20. Tax at 27.5% on EBIT and modest capital spend of $5m in FY21 increasing by 10% a year. Dilution of 3% a year brings 2030 share count to 142m, I assume future share issues to fund purchases are accretive at the discount rate so have ignored, so this just allows for ESOP dilution, which occurs more than I think is necessary! I see risk to be on the low side due to the low capital requirements, quality of management, strong competitive position and scalability of the business, discount rate of 9% and EV/EBITDA of 25 in the terminal year. Cash Flows (A$m): 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 35 119 140 161 181 203 220 235 248 262 Terminal = 6,545 (EV/EBITDA = 25) Discount rate = 9% IV = $39.04 My prior valuation (not published on strawman) was $37.65 from only a few months ago. The key changes are that I have added in the Mighty Ape business and higher margin growth, but I also significantly increased operating cost spend in response to the jump from the results just out. I have owned KGN since March 2019 and have not sold any. At the current value of $14 I am tempted to buy more but probably will not because it’s already a significant position, much lower and I may just have to…
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#Business Update 29/1/21
stale
Added 2 years ago

Record half including record breaking Black Friday week and Active Customers surging past three million

1HFY21 Highlights across the Kogan Group (including Kogan.com and Mighty Ape ) 1

? Gross Sales grew by more than 96%

? Gross Profit grew by more than 120%

? Adjusted EBITDA 2 grew by more than 175%

? EBITDA grew by more than 140%

? Cash at period end was A$78.9M with A$1.4M of the Group’s debt facility 3 drawn within Mighty Ape

? Active Customers was 3,003,000 for Kogan.com and 719,000 for Mighty Ape

DISC: I hold in both Strawman and TRW

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