Kathmandu Holdings Limited

KMD Details

Kathmandu Holdings Limited (NZX: KMD) happens to be the global outdoor, lifestyle as well as sports company. The company consists of 3 iconic brands: Kathmandu, Rip Curl and Oboz.

Results Performance (12 months Ended 31 July 2021)

• The company has reported sales growth of 15.1% to $922.8 Mn and this also includes the full 12-month contribution from Rip Curl. Notably, the company has posted gross margin of 58.7%, reflecting a rise of 40 basis points.
• KMD has posted underlying EBITDA growth of 35.9% to $113.3 Mn (which excludes the impact of IFRS 16 as well as one-off abnormal costs). This was driven by robust sales performance as well as focused management of operating expenses. Its statutory NPAT amounted to $63.4 Mn.
• KMD’s underlying NPAT rose by 110% to $66.3 Mn (which excludes the impact of IFRS 16 as well as one-off abnormal costs).
• The company is possessing robust balance sheet as it has $37.0 Mn of net cash. This allows the company to manage any sort of short-term COVID-related challenges. At the same time, it could support continued growth investment.
• KMD has declared final dividend of 3.0 cps (fully franked for Australian shareholders). This brought the total FY 2021 dividend to 5.0 cents per share.

Exhibit 1: EBITDA Margin

Source: Analysis by Kalkine Group

Key Ratios

In FY 2021, the company has posted gross margin of 58.7% as compared to the industry median of 21.2%. During the same period, its net margin stood at 6.9% as compared to the industry median of 4.7%, therefore, it could be said that KMD is possessing decent capabilities to convert its top line into bottom line.

Exhibit 2: Key Ratios

Source: Analysis by Kalkine Group

Top 10 Shareholders

The top 10 shareholders have been highlighted in the below charts, which together forms ~38.76% of the total shareholding. Yarra Funds Management Limited and Briscoe Group Limited are holding 8.3607% and 6.7711%, respectively.

Exhibit 3: Top 10 Shareholders

Source: Analysis by Kalkine Group

Recent Updates

• KMD has announced the appointment of Abigail Foote (Abby) as the Director of the Company. This became effective from 15^th October 2021.
• The company has stated that same store sales (including online) for the six full weeks to 12^th September 2021 were impacted by the Australasian COVID lockdowns. In addition to the Australasian lockdowns, restrictions have also impacted the company’s supply chain. Notably, the suppliers have reduced factory capacity because of the enforced closures, as well as freight congestion led to delivery delays as well as higher freight costs.
• KMD has announced that it has accepted the resignation of PwC as well as appointed KPMG as external auditor for the financial year ending 31^st July 2022.
• On 21^st September 2021, KMD has announced the final dividend for the period ended 31^st July 2021 of 3.0 NZ cps.

Outlook

Due to the uncertain COVID trading environment, the company has stated that it would not be providing forward guidance. However, as and when markets reopen, trading could improve and the company is expecting growth opportunity in the H2 FY 2022.

Notably, Rip Curl and Oboz wholesale order books are above pre-COVID levels and KMD has been actively managing ongoing supply chain challenges globally, mainly impacting the timely flow of products into the company’s North American markets.

However, Oboz product deliveries might get impacted for Q2. This is because Vietnam footwear factories are slowly ramping up production after the COVID closures during Q1. It needs to be noted that the demand for Rip Curl wetsuits has been exceeding the available supply.

The freight, logistics as well as raw material costs are elevated because the outlook for supply chain is challenging. The company stated that this could be managed, where possible, with the help of pricing as well as raw material substitution.

Key Risks

The company has stated that same store sales (including online) for the 13 full weeks to 31^st October 2021 were impacted by the Australasian COVID lockdowns. In the release dated 9^th November 2021, the company has stated that COVID-19 lockdowns impacted the first quarter results. Notably, net COVID impact is anticipated to result in Q1 operating profit being ~$35 Mn below last year. This was because lockdowns in NSW, Victoria, ACT as well as NZ were more severe than the prior comparative period and without any kind of direct Government subsidies recognised to date in FY 2022.

Valuation Methodology: EV to EBITDA Multiple Based Relative Valuation (illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

Despite the tough trading conditions, the company is all set to capitalise on the growth opportunities as and the restrictions related to the COVID-19 ease. KMD has been making deployments focused towards the long-term expansion of the global house of the outdoor brands.

The stock has been valued using EV/EBITDA multiple-based illustrative relative valuation and the target price so arrived reflects the potential rise of low double-digit (in % terms). A slight discount has been applied to EV/EBITDA Multiple (NTM) (Peer Average) considering the risks related to the COVID-19 pandemic as well as the associated lockdowns. However, the company is possessing robust balance sheet which could help it in moving forward.

Thus, we give a “Buy” rating on the stock price at the price of NZ$1.45 per share (New Zealand Time: 5:19 PM (GMT +12)) on 6^th December 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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