Kogan Primed For Significant 2018

This story features KOGAN.COM LIMITED. For more info SHARE ANALYSIS: KGN

Canaccord Genuity expects online shopping provider Kogan.com to have a stellar 2018, with the business experiencing strong and accelerating revenue growth.

-Expands inventory by 65% over the first half of FY18
-Leveraged to the successful selling through of private-label inventory
 

By Eva Brocklehurst

Online shopping provider Kogan.com ((KGN)) has confirmed Canaccord Genuity's expectations, posting its strongest quarterly growth rate for cash receipts since listing in July 2016, up 48%.

The company has consistently exceeded market expectations since listing and the broker believes this sets it up for a stellar 2018, as the business experiences strong and accelerating revenue growth amid continued expansion of gross profit margins.

Moreover, a number of new products and service verticals are expected to be launched in the second half of FY18. The company is investing in growth this year, having expanded its inventory by 65% over the first half to $69.6m.

This level of investment may concern some investors, the broker acknowledges, as it modestly exceeds organic revenue growth (48%) but, in defence, notes that 93.4% of inventory is less than 90 days old and this places the business on a solid footing.

The company's cash balance of $28.2m as of the end of the second quarter also indicates first half earnings are materially above current forecasts. In the wake of the quarterly update, Canaccord Genuity revises FY18 and FY19 estimates for operating earnings (EBITDA) up by 11%.

The broker points out that the company is heavily leveraged to the successful selling through of its private label inventory. Assuming around 75% of inventory on the balance sheet relates to private-label business, if the company can achieve turnover of four times while maintaining gross profit margins over 25%, this would add up to private-label revenues of $280m.

Such an outcome compares favourably to the broker's forecasts for 2018 and highlights the upside potential for this division.

Canaccord Genuity asserts the success in Kogan Mobile can act as a proxy for the consumer uptake of new verticals in the NBN and insurance categories. Following material upgrades to forecasts the target is raised to $7.50 from $5.20 and the broker maintains a Buy rating.

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