Online retailer Kogan is finally coming to market, with shares priced at $1.80 each.
The various offers open next Friday, with shares expected to list on the ASX on June 30.
Kogan is offering 28.4 million shares for sale in the IPO with existing shareholders continuing to hold 64.9 million shares, giving the company a $168 million theoretical market cap.
Compared to its larger brethren of JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN) with market caps of $2.2 billion and $5 billion respectively, Kogan is a minnow.
Let's take a closer look…
Revenues
Kogan had revenues of $200 million in the 2015 financial year (FY15) and is forecasting sales of $201 million in FY16 and $241 million in FY17. That's a big jump in sales from FY16 to FY17 – often called a 'hockey-stick' forecast. Kogan believes this is mostly due to the disruption in sales this financial year caused by the implementation of an SAP enterprise resource planning (ERP) system in late 2015. The company was forced to do heavy discounting to get rid of excess inventory, resulting in lower sales growth and earnings.
By comparison, JB Hi-Fi had sales of $3.7 billion in FY15 and expects FY16 sales to be around $3.9 billion. Online sales were 2.4% of total sales, or ~$89 million. Online sales are rapidly growing and were 3% of total sales for FY16 up to the end of March 2016. At that rate, online sales should be circa $117 million in FY16. So Kogan has higher online sales than JB Hi-Fi, but JB Hi-Fi's online sales are growing faster (32%).
Harvey Norman had sales of just over $6 billion in FY15.
Enterprise value to EBITDA multiple
Kogan's offer price for shares places the company on a multiple of 20x enterprise value (EV) to financial year 2017 earnings before interest, tax, depreciation and amortisation (EBITDA). That's not cheap as the following shows. JB Hi-Fi is currently trading on a trailing EV/EBITDA ratio of 8.6x, while Harvey Norman is on 11.7x.
Price to earnings multiple
We already know from the above valuation multiples that Kogan's shares are relatively expensive. On a P/E basis, they also appear expensive. JB Hi-Fi has a prospective P/E ratio of around 15.5x, Harvey Norman is also on a similar P/E ratio. Kogan's prospective P/E ratio for FY16 is 420x and a much more palatable 67x for FY17.
Foolish takeaway
Kogan shares aren't cheap, but the hype around the 'Aldi' of the consumer electronics space is tangible and growth has been strong. The company is also expanding into new verticals (mobile phones and travel) as well as into general merchandise and having some success.
Kogan has also built its brand so well that 82% of the traffic to the company's websites costs it nothing.
If the company can continue to grow as it has in the past, then despite the price tag, shares could be a bargain, but investors will need to do their own research.
