Koovs plc (LON:KOOV) has today announced a major deal with Hindustan Times Media (“HT”). HT is taking a substantial stake in Koovs in exchange for advertising and marketing credit, providing a cornerstone investor for Koovs’ fundraising and endorsing Koovs’ strategy to become a major player in Indian fashion e-commerce. We would expect this deal to provide significant encouragement to other investors looking to fund Koovs’ next stage of development. We have not yet adjusted any of our forecasts as the deal remains conditional on further fund raising, which has not yet been agreed – but the company remains confident that terms will be agreed.
Advertising deal: HT has agreed to provide Koovs with £24m of advertising and media services over two years in exchange for £16.8m-worth of equity, provided Koovs raises a minimum of £6m cash of new equity. The balance of the media spend is to be provided in cash by Koovs.
Two-year structure: The equity will be subscribed for in four equal tranches over two years, with the price determined as the average traded price of Koovs’ shares over the prior three months. If the share price rises sustainably on the back of the deal, then future tranches will be at a higher price.
Valuation: Conventional valuation metrics are unhelpful. We take our forecast EBITDA for Dec’22, apply a Boohoo/ASOS multiple and discount the value back to today. Even at a 25% discount, the EV comes out at £357m, including the funds to be raised. The current price is a poor indicator of the inherent value.
Risks: The company still needs to raise more finance; it has been diligently preserving cash but it needs a further ca.£27m to flourish. Once refinanced, we see the two key risks being slower uptake of e-commerce in India than we forecast and damaging discounting by Koovs’ indirect competitors.
Investment summary: Once the money is raised, Koovs plc will be 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 a major Indian digital media player.
