Is the Kogan sell off overdone?

Is the Kogan sell-off overdone?

Kogan (ASX: KGN) shares dropped more than 10% following the announcement of its fiscal 2023 results and haven’t budged much since. Revenue fell 32% to $490 million while sales fell 28% to $844.8 million.

Source: Morningstar

The pure play online retailer has made the Morningstar Best Ideas List and is still positioned for an encouraging outlook, according to Morningstar equity analyst Johannes Faul.

“We were astonished by the severe selloff in Kogan shares following a mostly known fiscal 2023 result,” Faul said.

Acknowledging the current headwinds including a spending pullback on discretionary spending from consumers, Faul has reduced Morningstar’s near-term underlying EBITA (earnings before interest, tax and amortisation) but the long-term earnings estimate from his fiscal 2025 outlook is largely unchanged.

“The market appears more cautious than us on Kogan’s ability to expand profit margins, or its long-term growth potential, which we expect to be underpinned by a structural shift to ecommerce,” Faul says.

On his assessment, the management update on the outlook for fiscal 2024 is encouraging and Faul highlighted a number of positives from this outlook.

Kogan First

Its EBITA was already up 130% in July to $3.5 million with management expecting profits to build incrementally. Faul believes cost efficiencies will drive margin expansion “while the top line is supported by a recent acceleration in Kogan First subscriptions”. 

Kogan First subscribers grew to over 401,000 for the fiscal year, compared to over 372,000 in the prior corresponding period. The business expects these subscriber numbers to grow further following the recent expansion of the Kogan First program.

Faul also believes further income will be generated by the new advertising platform for third-party marketplace sellers launched at the end of fiscal 2023 to increase their prominence on Kogan’s platform:

“The marketplace has also been introduced in New Zealand, along with other new verticals further diversifying earnings.”

Kogan highlighted that verticals revenue grew by over 6% year-on-year, with the return to growth of Kogan Mobile Australia being a highlight.

While Kogan suspended its dividend, Faul expected the board will reinstate the dividend next year:

 “While macro headwinds persist we see more cost efficiencies to grow profits.”

First published on the Firstlinks Newsletter. A free subscription for nabtrade clients is available here.

Analysis as at 30 August 2023. This information has been provided by Morningstar Australasia (ABN: 95 090 665 544, AFSL 240892), for WealthHub Securities Ltd ABN 83 089 718 249 AFSL No. 230704 (WealthHub Securities, we), a Market Participant under the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 (NAB). NAB doesn't guarantee the obligations or performance of its subsidiaries or the products or services its subsidiaries offer. Whilst all reasonable care has been taken by WealthHub Securities in reviewing this material, this content does not represent the view or opinions of WealthHub Securities. Any statements as to past performance do not represent future performance. Any advice contained in the Information has been prepared by WealthHub Securities without taking into account your objectives, financial situation or needs. Before acting on any such advice, we recommend that you consider whether it is appropriate for your circumstances.