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16 October 2020 | Buy

BUY | Kathmandu Holdings Limited


BUY – Kathmandu Holdings Limited (ASX:KMD)

Kathmandu Holdings Limited (KMD) is a specialist outdoor adventure and sporting clothing and apparel designer with operations in New Zealand, Australia, the United States, and the United Kingdom.

Flagship brands include Kathmandu and recently acquired Rip Curl, marketed through 325 owned stores, online, and via wholesale channels.

2020 has been an extremely difficult year for KMD, with bushfires early in the year affecting demand for hiking gear and of course, COVID-19 which has not only physically restricted store openings but also travel (a double impact on KMD as its products are often associated with travel). The timing could not have been worse after it acquired the Rip Curl brand in 2019.

While Rip Curl adds a tier-one global brand to KMD’s portfolio, it was largely funded through debt which became an issue amidst the COVID-19 crisis, forcing KMD to raise $207m in fresh equity amidst depressed market conditions.

These factors have seen KMD’s share price fall 60% from highs late last year to levels we feel offer attractive medium and long-term value, given the company now has a strong balance sheet, several unique high-quality assets, and enormous recovery potential. Furthermore, the COVID-19 experience has accelerated KMD’s focus towards online development, with today’s results, while inline with expectations overall, highlighting strong growth in this channel.

The reopening of economies will be fluid, and will of course vary by region (KMD’s global nature should help smooth this out), but the bounce-back potential is undeniable. Consumers who have been denied the opportunity to travel (creating pent-up demand) will once again do so, prompting a large shift in consumer spending away from work and stay-at-home items (furniture, electronic devices) to areas associated with travel and active leisure.


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