With the bulk of companies having reported we are at the tail end of reporting season. For that reason we thought it would only be fitting to find two stocks that have reported well or have reported not so well. In this article we find one stock that investors should be buying after a positive earnings result and we find one stock investors should sell after a negative result.
Kogan (KGN) – Ruslan Kogan does it again. Another blistering result that has the stock up 10%. We’ve been avid supporters of Kogan for some time and wrote about the stock back in January last year when it was $1.65. It’s now $8.14. That’s a 393% share price increase. Not bad at all. Back then we said “We like the Kogan business. KGN has $26.5m in the kitty and it’s hitting its prospectus profit forecasts with ease. The chart says Buy. The stock has recently broken out on the upside and has reversal in trend. Traders should looking to buy on this bullish break out.” Here are a few of the dot points:
- Trading EBITDA in the first half of FY18 outperformed full year FY17 Pro Forma EBITDA.
- Revenue of $209.6m, up 45.7% on prior year (1HFY17: $143.9m).
- 1HFY18 Trading1 EBITDA of $14.1m, up 93.2% on prior year (1HFY17 Pro Forma: $7.3m), reflecting revenue growth and margin expansion.
- Trading1 NPAT of $8.1m, up 118.9% on prior year (1HFY17 Pro Forma: $3.7m) and outperformed full year FY17 Pro Forma NPAT of $7.2m.
- Statutory NPAT of $8.3m (1HFY17: $1.5m) and outperformed full year FY17 Statutory NPAT of $3.7m.
- Growth in active customer base to 1,166,000, up 40.5% from 31 December 2016, driven by growth in the Kogan Brand, New Verticals and strategic marketing initiatives.
- Gross margin expansion to 19.4% (1HFY17: 18.0%) as a result of rapid growth in New Verticals and acceleration of the Partner Brands Product Division.
- Strong balance sheet with net cash of $28.2m, operating cash flow before capital expenditure of $4.6m and operating cash conversion of 32.6%.
- Fully franked interim dividend up 76.9% YoY to 6.90c.
So the question is, is Kogan still a buy?
Heading into reporting season we had hopes that KGN would beat expectations on the upside. We were proven right this morning after the company beat forecasts. With a market value of close to $800m, the stock is now double the size of Myer (MYR) and closing in on Super Retail Group (SUL).
KGN delivered a bumper profit. Underlying NPAT came in at $8.1m up 118.9% and beat a consensus forecast of $6.7m. It’s profit more than doubled after the online retailer added new products and services and attracted new customers. Sales were up 46% to $209.6m also ahead of an expected $206m. It achieved strong growth after the number of online customers rose 40.5% to 1.16 million. It comes at a time when almost every retailer is feeling the Amazon effect. Myer (MYR), Harvey Norman (HVN) and Coles are all facing negative headwinds. KGN has a growing brand and recently launched Kogan Health in February this year. It also plans to launch Kogan Life, Kogan Pet and
Kogan Internet all due 4Q18. The business continues to invest in marketing, following better than expected ROI. The business is now experiencing significant operating leverage, with acceleration of EBITDA materially outpacing revenue. Outlook: The company has a positive outlook for 2HFY18 due to trajectory in revenue, gross profit and strong growth in Kogan Mobile. No formal guidance was given however it will issue an updates on the trading performance of the business around the time of the quarterly cash flow releases. 2HFY18 has started well, with the January 2018 results, which are unaudited, showing a further acceleration in revenue than that achieved in 1HFY18 versus 1HFY17.
This set of results were good and its outlook great. We think KGN will soon be up with the big retailers and is a company the will push past the $1bn mark soon. On the chart the stock has broken out on the upside rising some 15%. Whilst looking a touch overbought the stock is in a solid uptrend. RSI is well above 80. It’s definitely worth buying on a pullback.
Blackmores (BKL) – We got this one wrong. We were hoping Blackmores would post a stellar result such as its profit of $100m in 2015/16 that came on the back of booming Chinese demand, but things didn’t pan out that way. Instead the company is struggling with supply problems and can’t get its hands on whey protein and fish oil. To make matters worse the Australian retail market has been weak and the Chinese market has become more competitive due to a number of rivals that have entered the space. It’s an oversaturated segment that is now fiercely competitive.
Here are a few dot points from the results:
- Group net sales of $287m, up 9% compared to previous corresponding period
- Sales result driven by strong performances from China, BioCeuticals and across Blackmores’
- other established Asia markets
- Net profit after tax of $34m, up 20% compared to previous corresponding period
- First half dividend of 150 cents per share fully franked, up 15% compared to previous corresponding period
- Dividend 150c full franked.
- Blackmores China sales grew by 27% to $74m with record sales from online promotional events including Singles Day and 12/12.
- Launched small range of registered products in Vietnam.
- Gross debt of $100m up $21m compared to June 2017.
Unconventional View: As we all know, high PE stocks that disappoint during reporting season are usually dealt with by the market in quite an unforgiving way. This was the case with BKL. The company posted a NPAT result of $34m which was a miss on consensus forecasts for $35.10m. Then to add to it, the board expressed doubts over the company’s guidance going forward. The board says there are supply issues affecting the Group and the soft Australian retail market will impact in the second half. Whilst BKL still remains confident that it will continue to deliver good profit growth for the full year, there factors have the market concerned. We think shares will continue to track lower. On the chart the stock has just dipped below the 200 EMA, that’s a bearish signal.