MENU Ltd shares rocket after half-year profit more than doubles

Source: Kogan presentation

In morning trade the Ltd (ASX: KGN) share price has surged 10% higher to $7.95 following the release of an outstanding half-year result.

For the six months ended December 31, Kogan delivered a 45.7% increase in revenue on the prior corresponding period to $209.6 million. Thanks to this strong revenue growth and a 1.4 percentage point lift in its gross margin to 19.4%, trading earnings before interest, tax, depreciation, and amortisation (EBITDA) came in 93.2% higher than the prior corresponding period at $14.1 million. In fact, this first-half trading EBITDA result was greater than the entire pro-forma EBITDA generated in FY 2017.

It was the same on the bottom line as well, with half-year trading net profit after tax (NPAT) rising 118.9% on the prior corresponding period to $8.1 million. This compares to full-year pro forma NPAT of $7.2 million in FY 2017.

On a diluted per share basis, half-year earnings were 9 cents. The board has elected to pay out approximately 77% of this as a dividend, with eligible shareholders due to receive a 6.9 cents per share fully franked interim dividend next month.

Management advised that the strong result was driven by growth across all product divisions, a 40.5% increase in active customers, and the expansion into new verticals. The Kogan Mobile segment, for example, delivered a 340.9% increase in revenue on the prior corresponding period. As you can see below, this the Kogan Mobile business now accounts for 11.9% of gross profit.

Source: Kogan presentation

Whilst management once again reiterated that it will not be providing any formal EBITDA guidance for the full-year, it has stated its expectation that it will benefit in the second-half from further growth in its active customer base, Kogan Mobile, and the launch of insurance products and its internet offering.

Should you invest?

I’ve had a few doubts about whether Kogan would be able to live up to its valuation in the past, but I think this result has more than justified the incredible rise in its share price and the premium its shares trade at.

While it is still a high risk investment, I would put it up there with Lovisa Holdings Ltd (ASX: LOV) and Premier Investments Limited (ASX: PMV) as one of the best options in the retail sector today.

Looking for the next Kogan to invest in? Then check out these three stars of the future.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia has recommended ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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