New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<h2>Kathmandu (KMD)</h2>
FY19 Initial Impressions — Strong result, led by Oboz contribution
Kathmandu (KMD) continues to exhibit strong operational execution, reporting a solid FY19 result with earnings above the top end of the guidance range and ahead of both consensus and our expectations. FY19 NPAT of NZ$57.6m, up +14% on the prior year period was driven by a combination of Oboz, which experienced continued growth and provided a full 12 month contribution, and a strong Australian result, offsetting a weaker period in New Zealand. A reduction in the cost of doing business margin was also a contributor to improved earnings with a higher sales mix weighting towards the higher margin wholesale channel. A reduction in net debt of -39% on the prior year period to NZ$19.3m was underpinned by strong operating cash flow and inventory management.
KMD declared a fully imputed final dividend of 12cps, ahead of our expectations (11cps) taking the full year dividend to 16cps.&nbsp; &nbsp;
Key divisional highlights&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<ul>
<li>Oboz: Key driver of the result with revenue growth up +30% and EBIT up +39% on a pro forma basis.</li>
<li>Australia and New Zealand: Australian same store sales (SSS) growth of +2.7% offset a weaker period in New Zealand (SSS down -3.9%) with a late start to Winter impacting sales of seasonal product.</li>
<li>Online:&nbsp;Online sales up +9.2%; now comprise 10.1% of direct to consumer sales.</li>
</ul>
Outlook and our view&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
KMD has not provided guidance for FY20 at this stage, however has highlighted the particularly strong start to the year. In the seven weeks to 15 September, constant currency Group SSS are up +6.1%. New Zealand SSS growth of +12% was likely helped by cooler weather combined with discounting activity (lower margin impact). KMD remains well positioned in terms of its core Australian and New Zealand business and is gaining momentum in its international business, a possible source of upside for investors.
Our current target price is NZ$2.65 and rating NEUTRAL.
Conference call – 12:00pm NZ time&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;
KMD will host a conference call at 12:00pm NZ time (10:00am AEST). Dial in details are&nbsp;0800 453 055&nbsp;for NZ and&nbsp;1800 870 643&nbsp;for Australia. The conference ID is&nbsp;10001855.
Profit and loss summary (NZ$m)
<table class="table table-striped"><colgroup> </colgroup>
<tbody>
<tr>
<td></td>
<td>FY18A</td>
<td>FY19A</td>
<td>%chg</td>
<td>ForBarr</td>
</tr>
<tr>
<td>Sales Revenue</td>
<td>497.4</td>
<td>545.6</td>
<td>+9.7%</td>
<td>546.6</td>
</tr>
<tr>
<td>Gross Profit</td>
<td>315.5</td>
<td>332.5</td>
<td>+5.4%</td>
<td>332.0</td>
</tr>
<tr>
<td>Gross Margin</td>
<td>63.4%</td>
<td>60.9%</td>
<td>-2.5ppts</td>
<td>60.7%</td>
</tr>
<tr>
<td>EBIT</td>
<td>74.8</td>
<td>84.3</td>
<td>+12.7%</td>
<td>83.1</td>
</tr>
<tr>
<td>Profit Before Tax</td>
<td>73.7</td>
<td>81.4</td>
<td>+10.4%</td>
<td>81.2</td>
</tr>
<tr>
<td>Normalised Profit</td>
<td>50.7</td>
<td>57.6</td>
<td>+13.7%</td>
<td>56.4</td>
</tr>
<tr>
<td>Underlying EPS</td>
<td>24.0c</td>
<td>25.5c</td>
<td>+6.3%</td>
<td>25.0c</td>
</tr>
<tr>
<td>DPS</td>
<td>15.0c</td>
<td>16.0c</td>
<td>+6.7%</td>
<td>15.0c</td>
</tr>
</tbody>
</table>
Source: Company reports, Forsyth Barr analysis
Guy Hooper
Analyst, Equities
<table class="table table-striped">
<tbody>
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<td>
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</td>
<td>
+64 4 495 5255
</td>
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+64 4 495 8193
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<td>
PO Box: 5266, Wellington 6145
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</table>

Kathmandu (KMD)
FY19 Initial Impressions — Strong result, led by Oboz contribution
Kathmandu (KMD) continues to exhibit strong operational execution, reporting a solid FY19 result with earnings above the top end of the guidance range and ahead of both consensus and our expectations. FY19 NPAT of NZ$57.6m, up +14% on the prior year period was driven by a combination of Oboz, which experienced continued growth and provided a full 12 month contribution, and a strong Australian result, offsetting a weaker period in New Zealand. A reduction in the cost of doing business margin was also a contributor to improved earnings with a higher sales mix weighting towards the higher margin wholesale channel. A reduction in net debt of -39% on the prior year period to NZ$19.3m was underpinned by strong operating cash flow and inventory management.
KMD declared a fully imputed final dividend of 12cps, ahead of our expectations (11cps) taking the full year dividend to 16cps.&nbsp; &nbsp;
Key divisional highlights&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

Oboz: Key driver of the result with revenue growth up +30% and EBIT up +39% on a pro forma basis.
Australia and New Zealand: Australian same store sales (SSS) growth of +2.7% offset a weaker period in New Zealand (SSS down -3.9%) with a late start to Winter impacting sales of seasonal product.
Online:&nbsp;Online sales up +9.2%; now comprise 10.1% of direct to consumer sales.

Outlook and our view&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
KMD has not provided guidance for FY20 at this stage, however has highlighted the particularly strong start to the year. In the seven weeks to 15 September, constant currency Group SSS are up +6.1%. New Zealand SSS growth of +12% was likely helped by cooler weather combined with discounting activity (lower margin impact). KMD remains well positioned in terms of its core Australian and New Zealand business and is gaining momentum in its international business, a possible source of upside for investors.
Our current target price is NZ$2.65 and rating NEUTRAL.
Conference call – 12:00pm NZ time&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;
KMD will host a conference call at 12:00pm NZ time (10:00am AEST). Dial in details are&nbsp;0800 453 055&nbsp;for NZ and&nbsp;1800 870 643&nbsp;for Australia. The conference ID is&nbsp;10001855.
Profit and loss summary (NZ$m)
 



FY18A
FY19A
%chg
ForBarr


Sales Revenue
497.4
545.6
+9.7%
546.6


Gross Profit
315.5
332.5
+5.4%
332.0


Gross Margin
63.4%
60.9%
-2.5ppts
60.7%


EBIT
74.8
84.3
+12.7%
83.1


Profit Before Tax
73.7
81.4
+10.4%
81.2


Normalised Profit
50.7
57.6
+13.7%
56.4


Underlying EPS
24.0c
25.5c
+6.3%
25.0c


DPS
15.0c
16.0c
+6.7%
15.0c



Source: Company reports, Forsyth Barr analysis
Guy Hooper
Analyst, Equities




T:


+64 4 495 5255




TF:


0800 367 227




F:


+64 4 495 8193




P:


PO Box: 5266, Wellington 6145








W:


www.forsythbarr.co.nz



Twitter:

@forsythbarr





Kathmandu (KMD): FY19 Initial Impressions — Strong Result, Led by Oboz Contribution

<h2>Kathmandu Holdings</h2>
FY19 Preview — What’s in Store?
Kathmandu (KMD) will report its FY19 result on 18 September — with headline growth to be driven by the recent Oboz acquisition, while we forecast organic growth to be flat. Given recent guidance (FY19 NPAT of NZ$55.5m to NZ$57.0m), we expect little surprise. Key focus areas are: divisional detail, international expansion commentary and any early insight into FY20.
Key areas of interest
<ul>
<li>Divisional detail: KMD has already reported positive FY19 same store sales (SSS) growth, which was particularly encouraging given difficult trading conditions through the key winter period. Australia was the standout, offsetting a decline in New Zealand. Detail on drivers, divisional cost insights and the sustainability of growth would be key areas of interest.</li>
<li>Operating cash flow and inventory position: KMD guidance&nbsp;implies a material step up in operating cash flow through 2H19, driven by strong earnings and a release of seasonal inventory. We look for further commentary around inventory management.</li>
<li>Balance sheet &amp; dividends: KMD signalled materially lower net debt in FY19 with guidance of NZ$19.2m (FY18 NZ$31.4m). Given KMD’s conservative balance sheet (~4% geared) and pay-out ratio (~60%) we see upside risk to market dividend expectations.</li>
<li>International expansion plans: KMD’s international expansion offers investors optionality. Indications around early progress, with KMD launching in 25 stores (including REI) across the US in August, and growth ambitions/priorities from here would be of interest.</li>
<li>Current trading:&nbsp;A cold snap through August likely provided some respite for key seasonal product (particularly in New Zealand), while retail spending data also shows a rebound in growth. Any insight into recent trading is of interest, albeit we caution that 1Q20 is a seasonally weak period for KMD.</li>
</ul>
Figure 1. FY19 result expectations (NZ$m)
<table class="table table-striped">
<thead>
<tr>
<td></td>
<td>
FY18
</td>
<td>
FY19E
</td>
<td>
% chg
</td>
<td>
Consensus
</td>
</tr>
</thead>
<tbody>
<tr>
<td>
Revenue
</td>
<td>
497.4
</td>
<td>
546.6
</td>
<td>
9.9%
</td>
<td>
547.8
</td>
</tr>
<tr>
<td>
Gross profit
</td>
<td>
315.5
</td>
<td>
332.0
</td>
<td>
5.2%
</td>
<td>
n/a
</td>
</tr>
<tr>
<td>
EBIT
</td>
<td>
74.6
</td>
<td>
83.1
</td>
<td>
11.4%
</td>
<td>
82.5
</td>
</tr>
<tr>
<td>
Underlying NPAT
</td>
<td>
50.5
</td>
<td>
56.4
</td>
<td>
11.7%
</td>
<td>
55.7
</td>
</tr>
<tr>
<td>
Underlying EPS (cps)
</td>
<td>
23.9
</td>
<td>
25.0
</td>
<td>
4.3%
</td>
<td>
24.7
</td>
</tr>
<tr>
<td>
Dividend (cps)
</td>
<td>
15.0
</td>
<td>
15.0
</td>
<td>
0.0%
</td>
<td>
15.7
</td>
</tr>
</tbody>
</table>
Source: Bloomberg, Forsyth Barr analysis
Conference call — 12pm NZ time (10am AEST), Wednesday, 18 September
Dial in details are&nbsp;0800 453 055&nbsp;(NZ), 1800 870 643 (Australia). Conference ID:&nbsp;&nbsp;10001855.&nbsp;
<div class="content-highlight">
Investment View
KMD has a strong brand and market leading position in Australasia with its loyalty database and vertically integrated model also key strengths. KMD operates in a competitive sector and earnings are seasonal. The core business is in good shape, with focus now on the opportunity for the brand further afield. International is the key area of focus, with material capital committed to accelerate growth plans. Our rating is NEUTRAL.
</div>
Guy Hooper
guy.hooper@forsythbarr.co.nz
+64 4 495 5255

Kathmandu Holdings
FY19 Preview — What’s in Store?
Kathmandu (KMD) will report its FY19 result on 18 September — with headline growth to be driven by the recent Oboz acquisition, while we forecast organic growth to be flat. Given recent guidance (FY19 NPAT of NZ$55.5m to NZ$57.0m), we expect little surprise. Key focus areas are: divisional detail, international expansion commentary and any early insight into FY20.
Key areas of interest

Divisional detail: KMD has already reported positive FY19 same store sales (SSS) growth, which was particularly encouraging given difficult trading conditions through the key winter period. Australia was the standout, offsetting a decline in New Zealand. Detail on drivers, divisional cost insights and the sustainability of growth would be key areas of interest.
Operating cash flow and inventory position: KMD guidance&nbsp;implies a material step up in operating cash flow through 2H19, driven by strong earnings and a release of seasonal inventory. We look for further commentary around inventory management.
Balance sheet &amp; dividends: KMD signalled materially lower net debt in FY19 with guidance of NZ$19.2m (FY18 NZ$31.4m). Given KMD’s conservative balance sheet (~4% geared) and pay-out ratio (~60%) we see upside risk to market dividend expectations.
International expansion plans: KMD’s international expansion offers investors optionality. Indications around early progress, with KMD launching in 25 stores (including REI) across the US in August, and growth ambitions/priorities from here would be of interest.
Current trading:&nbsp;A cold snap through August likely provided some respite for key seasonal product (particularly in New Zealand), while retail spending data also shows a rebound in growth. Any insight into recent trading is of interest, albeit we caution that 1Q20 is a seasonally weak period for KMD.

Figure 1. FY19 result expectations (NZ$m)





FY18


FY19E


% chg


Consensus






Revenue


497.4


546.6


9.9%


547.8




Gross profit


315.5


332.0


5.2%


n/a




EBIT


74.6


83.1


11.4%


82.5




Underlying NPAT


50.5


56.4


11.7%


55.7




Underlying EPS (cps)


23.9


25.0


4.3%


24.7




Dividend (cps)


15.0


15.0


0.0%


15.7




Source: Bloomberg, Forsyth Barr analysis
Conference call — 12pm NZ time (10am AEST), Wednesday, 18 September
Dial in details are&nbsp;0800 453 055&nbsp;(NZ), 1800 870 643 (Australia). Conference ID:&nbsp;&nbsp;10001855.&nbsp;

Investment View
KMD has a strong brand and market leading position in Australasia with its loyalty database and vertically integrated model also key strengths. KMD operates in a competitive sector and earnings are seasonal. The core business is in good shape, with focus now on the opportunity for the brand further afield. International is the key area of focus, with material capital committed to accelerate growth plans. Our rating is NEUTRAL.

Guy Hooper
guy.hooper@forsythbarr.co.nz
+64 4 495 5255

Kathmandu Holdings: FY19 Preview — What’s in Store?

New Zealand

Kathmandu Holdings Ltd. provides clothing and equipment for the travel and adventure market. The Company operates retail locations throughout Australia and New Zealand.

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Kathmandu Holdings (KMD NZ)

Kathmandu (KMD): FY19 Initial Impressions — Strong Result, Led by Oboz Contribution

Kathmandu (KMD) FY19 Initial Impressions — Strong result, led by Oboz contribution Kathmandu (KMD) continues to exhibit strong operational...

Forsyth Barr

Kathmandu Holdings: FY19 Preview — What’s in Store?

Kathmandu Holdings FY19 Preview — What’s in Store? Kathmandu (KMD) will report its FY19 result on 18 September — with headline growth to be driven...

Forsyth Barr

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