The important information from Koovs’ FY19 results is not the results for the year but the trading since the company secured its additional financing. With Gross Order Value (GOV) up 104% in 1Q20, Koovs is once more showing the sort of growth associated with online success. FY19 itself was a lost year, as the company conserved cash while it successfully sought new investors; they eventually arrived – not only with money but with important synergistic benefits too. The GOV data is a function of being able to finance growth again. The benefits of the Future Lifestyle (FLFL) tie-up are still to come in additional distribution and improved buying.
- Strategy: Koovs’ plan to become the ASOS of India is back on track. The impact of the lack of resources in FY19 showed up in the low growth in reported revenue (+9%). With the tap turned back on, GOV has doubled in 1Q20 and web traffic is up 148% (and this not achieved at the expense of the trading margin: up to 21%).
- Forecasts: We have, effectively, shifted our forecasts one year later. The expected revenue in FY20 is roughly what we were anticipating for FY19, had the funding arrived straightaway. The base is slightly lower, but we would expect that the benefits from the FLFL tie-up should accelerate growth prospects.
- Valuation: Our valuation has changed – under the old estimates, the value should have risen, as the growth came through and the discount unwound. By delaying for a year, this has not happened, and there has been some dilution. Our central estimate of value suggests that Koovs is worth £300m today, or 74p per share.
- Risks: We see the two key risks as being slower uptake of e-commerce in India than we forecast, and damaging discounting by Koovs’ direct and indirect competitors. Koovs also needs to manage the relationship with FLFL successfully to optimise its benefits. In addition, it will need further funding in FY21 to achieve its plans.
- Investment summary: With the money raised and the new partners on board, Koovs becomes an exciting way to play the last big world retail market to move online. The prize, if it gets it right, is a billion-pound company and more. It is likely to be a bumpy, exciting ride, but investors have the reassurance of a highly experienced management team in charge, and the backing of two major Indian corporations straddling both retail and media.
