‘Resilient’ Kogan must now deliver

KoganFollowing a disappointing ASX debut, online retailer Kogan now needs to get some “runs on the board,” argue analysts.

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Kogan.com shares opened at midday last Thursday at $1.80, and within 40 minutes had dropped 12.2 per cent to $1.58. By Monday afternoon shares had recovered somewhat, trading at $1.64.

Daniel Mueller, senior equities analyst at Forager Funds, described the debut as “disappointing.”

“There was a lot of expectation upon IPO and given how the share price has performed it clearly hasn’t delivered,” Mueller told Inside Retail Weekly.

Mueller said Kogan now needs to deliver on the numbers forecast in its prospectus.

“That’ll take a little bit of time, but if they can deliver on those prospectus numbers then my expectation would be the share price would stabilise,” he said.

Kogan is forecasting sales of around $241.2 million in FY17 and earnings to lift to $2.4 million.

“It’s the sort of business that will attract a certain type of investor looking for that high growth, perhaps higher risk if they can’t meet those expectations.”

Asked if the turmoils of publicly listed online retailers Temple & Webster and SurfStitch over the last six months may have impacted Kogan’s performance, Mueller said it difficult to generalise.

“I think those particular examples had stock-specific issues,” Mueller said. “I don’t think you can throw a blanket over online retailers and say they are not great investments for whatever reason.”

Mueller noted that more broadly the investor community is more risk averse to young, high-growth businesses.

“There are times when there is a lot of risk appetite out there for these sorts of things and there are other times where investors just want to see them put some runs on the board. I think we have probably moved into a period of the latter,” Mueller said.

“In general terms for IPOs there’s always demand for a good quality IPO that is cheap and has good growth. It’s hard to envisage a market where there isn’t demand for those sorts of businesses.”

Gayle Dickerson, national head of retail, Grant Thornton Australia, also described the opening day of trade as disappointing, but noted it may have been a victim of bad timing.

“It was a disappointing debut performance but perhaps expected considering the number of headwinds from current global market uncertainty and potential knock on impact to consumer spending,” Dickerson said.

“Whilst there are some pure play retailers under pressure there are others who are growing and taking market share such as the Iconic.

“Kogan has proven to be resilient previously, and expect to see some recovery in share price. However perhaps this is now the time for him to consider a blended approach between bricks and mortar ‘showrooming’ and his online model.”

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