642 – The Weekend Podcast: 5 Reason I Still Hold Shares in Koovs (even though I’m not sure they will perform)

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642 – The Weekend Podcast: 5 Reason I Still Hold Shares in Koovs (even though I’m not sure they will perform)

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642 – The Weekend Podcast
Share Price: 55p
Market Capitalisation: £94m
Shares in Issue: 171,383,691
Assets: In their preliminary results highlights for the year to 31 March 2016, their net assets stood at £8.8m. This doesn’t include the £39.1m they’ve subsequesntly raised in cash.

I originally bought shares in Koovs in January at 15.75p.  Since then they’ve done well. In July they hit 96p but have since fallen back to 55.25p.

It’s hard to know where these shares will end up. Are they overvalued? Probably. So why don’t I sell? It’s a simple answer, it’s not part of my strategy to sell.

KOOVS

5 Reason I Still Hold Shares in Koovs (even though I’m not sure they will perform)

1. STRATEGY
strategy-001

About 18 months back, I started to focus my research on the smaller end of market cap spectrum. It’s been a steep learning curve. I’ve suffered my fair share of losses but fortunately, I’ve also had my fair share of winners and multi-baggers. All in all, my portfolio value has grown way beyond what I could’ve have hoped to have achieved, at the blue chip end of the market.

What I’ve learned is two things:

– You’ve got to have a strategy, that’s your own. Something you feel comfortable with.

– You’ve got to have the discipline to stick to it.

I talk about my strategy on the weekend podcast and will be publishing it, in a blog, in the next few weeks.

In simplified terms, I’ve doubled my money on Koovs so I’ve sold half and will let the other half run. This way, I’ve completelty de-risk my position here.

 

2. CASH:

Cash 004
On 17th November Koovs raised £12.9m via equity at 50p per share.
This raise included a strategic investment of £3.9 million from The Times of India Group. The Times of India is the third-largest newspaper in India by circulation and largest selling English-language daily in the world.

times-of-india

This, “gives Koovs access to multiple channels nationally across TV, print, radio, outdoor, online and digital, enabling the Company to further amplify and extend Koovs brand reach efficiently through highly relevant and integrated media assets”.

 

On the 30th June they raised £26.2m via equity at 25p per share.
This raise included a £3.0m strategic investment by HT Media Limited. HT Media is an Indian mass media company based in Delhi, India. It has holdings in print, electronic and digital media.

ht-media

HT’s online business, is largely handled by Firefly e-ventures internet business, include the flagship web portal Hindustantimes.com, Livemint.com, Desimartini.com and Shine.com.

HT Media’s revenue in 2015 was $360 million, their net income was $32 million and they have 2,708 employees.

In their preliminary Results for the year ended 31st March 2016, they had cash of £2.5m

With the £39.1m they’ve rasied, at current cash burn levels, this cash will last for 26 months.

BUT – If their current revenue grows continues at the pace it has been, you’d have to assume that their cash burn would decrease.

 

3. SALES

sales
Below is their last 3 major annoucements as regards sales:

17 weeks 01 April to 31 July 2016:
– Sales were £5m, 115% up on the same period in 2015

If you divide the sales by 17, it works out to £294,117 per week.

Full Year to 31 March 2016

– Sales were £10.0m 189% on the previous year

If you divide these sales by 52 weeks, it works out to an average of £192,307 per week.

14 weeks to 3 January 2016
– Sales were £2.96m 210% up on the same period in 2015

If you divide the sales by 14 weeks, it works out to an avaerge of £211,428 per week.

Using the figures above, I’ve put together a spreadsheet, to try to predict their future sales from the start of this financial year.

Even though this growth is impressive, you could easily argue, this does not justify their £94m market cap. Having said that, who is to say they can’t keep growing at this rate and how long it will go on for.

I’d be impressed if in their interim results for 6 months, released around 20th December this year, their sales are greater than £10m and their full year results next year exceed £20m.

 

4. HEAD HONCHOS

Koov’s management is very impressive and are basically ex-Asos people (the most successful AIM share ever). You can read about them in my previous blog by clicking here.

In the video above, Mary Turner, CEO of Koovs talks about India as an online fashion market place and Koovs within that space.

 

5. SHARES

koov-significant-shareholders-1

Their share register was last updated on 4th July, since this date there has been some change but Lord Waheed Ali is still the biggest shareholder and they state, “As far as the Company is aware, the percentage of the Company’s issued share capital that is not in public hands is 74.3%”.

So there shares are tightly held and there very little in free float.

in-summary

It’s easy to argue that Koovs is overvalued.

Should a company with net assets of £8.8m making a £16m loss, albeit they have £40m in cash and sales of £10m, be valued at £94m?

I have no idea whether the shares will fizzle out or become a contender for the, “next Asos” title (they certianly have a lot of the same management). I’m sure there are people, who thought themselves investment genii when they bought Asos shares are 20p and sold them for 200p. The shares were regarded as overvalued then but still went on to 4000p.

This is why I am going to hold shares in Koovs because their managment are the brains behind Asos. Ok the online fashion space is a lot more crowded now than when Asos started but Koovs is focused solely on India. Koovs stated in their recent trading update:

India offers a huge opportunity for ecommerce and online fashion in a rapidly expanding market which is expected to increase five-fold by 2020, to £2.5 billion. Koovs 115% sales growth over this period is notably ahead of India’s market benchmarks of 50% annual growth in ecommerce, and 75% in online fashion.

They also have backing from some major media groups in India, so there’s potential and this management are the right people to capitalise on this upside.

Will it be the next Asos?

Who knows but I think it makes more sense to give them a chance before I guess the answer and this is why I will continue to hold my shares in Koovs (at least until their next trading update in December).

PLEASE DO NOT MAKE ANY INVESTMENT DECISIONS BASED ON THE CONTENTS OF THIS BLOG (OR ANYTHING ASSOCIATED WITH IT) IS NOT INTENDED AS INVESTMENT ADVICE. PLEASE DO YOUR OWN RESEARCH.

To read my previous blog on Koovs click here

 

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The content of this podcast (or content associated with it) is not intended as investment advice and people featured may hold positions in the companies they talk about. Please do you own research.