Kogan Earnings: More Cost Efficiencies To Grow Profits While Macro Headwinds Persist

We were astonished by the severe selloff in no-moat Kogan shares following a mostly known fiscal 2023 result. We ascribe the market’s reaction to a muted short-term outlook. Shoppers are still reining in their discretionary spending, and management cited gross sales growth is more likely to strengthen in the second half of fiscal 2024. We taper our fiscal 2024 earnings estimate, adopting a more cautious outlook on fiscal 2024 gross sales growth of 2%, down from 7% before. We also expect more muted operating leverage and reduce our near-term underlying EBITDA margins to 5% from 7% previously. However, our longer-term earnings estimates from fiscal 2025 are largely unchanged. The valuation impact of the weaker near-term outlook is immaterial after offsetting it by the time value of money effect. Shares screen as significantly undervalued compared with our unchanged AUD 10.70 fair value estimate. 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 e-commerce.