There’s now extra pressure on the Kogan (ASX:KGN) share price to perform

There will be extra pressure on Kogan co-founders to deliver a share price recovery if they want a big payout. Here’s why

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The Ltd (ASX: KGN) share price was one of those ASX shares that seemed to be a decisive ‘pandemic winner’. As lockdowns forced us all inside last year, Kogan’s e-commerce marketplace boomed. This resulted in Kogan shares rising from around $4 each in March 2020 to a new all-time high of $25.57 by August. 

However, the more recent months haven’t been so kind. On today’s share price, Kogan is now down around 60% from those highs. And that’s despite Kogan being up a healthy 3.11% today to $10.29 a share at the time of writing. Even so, Kogan has been resurgent this week.

The company dropped to a new 52-week low of $8.70 just yesterday. That means that Kogan is now up more than 20% since market open yesterday. Talk about volatility! Clearly, there are large numbers of investors who saw these share price lows as a bargain opportunity.

But perhaps there is now more pressure on Kogan to perform than ever before. Well, for Kogan co-founders David Shafer and Ruslan Kogan, that is. According to a report in the Australian Financial Review (AFR) yesterday, Mr Shafer and Mr Kogan were issued 6 million options for Kogan last year, as part of their shareholder-approved remuneration packages.

At the time, these options were worth a collective $100 million. Their only condition was that Messrs Kogan and Shafer couldn’t resign before their redemption. These options are exercisable in 2023 at a price of $5.29. But due to the falling value of Kogan shares over the past 10 months, they are now estimated to be worth almost half that amount. Perhaps a little more with today’s share price moves.

The Kogan share price and optionality

These options give Kogan’s co-founders the right to acquire more shares at the strike price on the expiration date. As such, if the Kogan share price rises above the option strike price, the options grow in value.

This gives the co-founders a powerful incentive to grow the Kogan share price over the next 2 years – part of the reason why options are a popular component of executive pay packets these days.

The AFR quoted Ron Shamgar, head of Australian Equities at TAMIM Asset Management, on this matter. He said the following:

You’d argue that management is now more than ever incentivised to make money on these options in a couple of years from now… They have to now work for it to make money on it, whereas last year it looked like they didn’t need to do anything for it… Ironically I think it’s going to work for the benefit of shareholders, considering the current issues… We still think they have to deliver to get value out of their options.

On the current Kogan share price, the company has a market capitalisation of $1.11 billion, a price-to-earnings (P/E) ratio of 25.6 and a trailing dividend yield of 2.83%.

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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ltd. The Motley Fool Australia has recommended ltd. 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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