Investment Thesis

Kathmandu is positioning itself to be an holdings company of identifiable outdoor brands with the acquisitions of Oboz in 2018 and Rip Curl in 2019.  These brands provide a rounded portfolio that should provide stable revenue streams across the year balancing out the seasons.  There is also an opportunity to leverage the global reach of the different brands to increase the groups reach of the respective brands providing an avenue for sales growth.

Company Performance

Equity and revenue have been growing reasonably consistently around 8-9% a year over the last 10 years.   Return on equity is also sitting at a healthy 11% over the last five years.

EPS has been diluted over the last few years due to recent equity raises to support both the purchase of Oboz and Rip Curl.   An additional equity raise was completed in March 2020 in response to COVID-19 to reduce company leverage which was taken on as part of the Rip Curl acquisition. 

I believe there is sufficient runway and opportunity to continue the growth in equity over the longer term. 

Risks

·        Kathmandu try to expand too quickly through further acquisitions and over leverage the balance sheet.  though I think the current climate will serve as a fair reminder to keep debt down to a manageable level

·        Individual brands lose their identities and thus their brand loyalty / worth

Opportunity

I think COVID-19 has created some real value in the current share price even considering the recent equity raises that have diluted EPS as their growth rates are still relatively attractive.  I Kathmandu could see some positives out of the travel restrictions with people looking at exploring Australia’s back yard and purchasing Kathmandu camping gear.

I am targeting a price of $1.76 as a longer term play.