New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

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Equity Bottom-Up

<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 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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