Strong results from cheap ASX share

Johannes Faul | Morningstar

Kogan’s (ASX: KGN) first-half fiscal 2026 underlying NPAT declined 1% to $12 million. The smaller New Zealand business dragged heavily on group profits. The Australian Kogan.com platform increased EBITDA by 18% on 17% higher revenue. The interim dividend is up 14% to $0.08. Shares were up 6%.

Why it matters

We expected New Zealand to struggle in the first half. Management had flagged its decision to take a hit on the segment’s gross margins and discount surplus inventory. A similar decision was made in Australia in fiscal 2024, after which sales and gross profits recovered.

• We expect New Zealand to break even in the second half, strengthening group margins. In the Australian segment, EBITDA margins expanded slightly, despite significantly higher marketing spending to drive 21% gross sales growth and gain market share after the exit of both Catch and MyDeal.
• We expect immaterial working capital will be spent to refresh its New Zealand inventory. In the longer term, we anticipate its sales mix will skew toward its marketplace, for which third parties carry the inventory and associated risk. Excess capital is returned with dividends and share buybacks.

The bottom line: We maintain our fair value estimate at $9 for no-moat Kogan. Shares are significantly undervalued. At our upgraded fiscal 2026 dividend per share estimate of $0.16, it offers a fully franked yield of 6% at current prices. It offers a 10-year CAGR in earnings per share of 21% at our midcycle estimate.

Between the lines

After ramping up marketing to capitalize on the exits of online competitors, we anticipate a balanced approach to marketing spend and market share gains.

• We assume marketing as a percentage of sales falls to 13%, down from 16% in the half, with the aim to hold its 2% share of Australian e-commerce.

Kogan distributing excess capital via dividends and buybacks

Kogan’s business strategy is broadly based on low-price leadership. However, as the competitive outlook intensifies from both Amazon and omnichannel retailers, Kogan is adjusting by launching a new online marketplace and building businesses like Kogan Mobile and Kogan Energy. Compared with new entrants and most traditional retailers, while replicable we believe Kogan is far ahead on its supply chain, operational automation, IT, and sourcing capabilities. It outsources delivery and uses third-party logistics providers for warehousing, but has built a proprietary least-cost routing system that automatically calculates the best carrier depending on the article ordered.

Kogan’s strategy for its exclusive and third-party brand products sales is to drive growth in its platform-based sales. While product segment sales are slightly loss-making on the EBITDA line, platform-based sales are very high-margin. Platform-sales margins have gross margins of virtually 100% and EBITDA margins of around 50%. The platform business is scalable, and, if successfully growing, can support material group operating margins expansion over time.

Platform sales include Kogan’s marketplaces in Australia and New Zealand, as well as its Kogan First and Primate loyalty programs.

We see great potential in Kogan’s relational business growth through its Kogan First membership model. Kogan First is a loyalty subscription service that allows users to pay less for products and delivery and gives access to exclusive offers. Kogan First has seen impressively fast user adoption since it launched in 2019. The majority of subscribers are on annual plans, and Kogan First members contributed about 50% of product gross sales in fiscal 2025.

Bulls say

• Kogan is well placed as a pure-play online retailer due to structural tailwinds from online migration.
• Kogan First has the potential to double its current subscriber base, growing the recurring income stream it generates and strengthening customer loyalty.
• Marketplace is expected to significantly improve margins as sellers cross-list on its marketplace for greater exposure.

Bears say

• Consumer discretionary spending and sales growth is vulnerable to the economic cycle. In the longer term, growing competition from Amazon and omnichannel retailers could erode Kogan’s market share.
• The smaller New Zealand Mighty Ape business is challenged with a cyclically weak consumer and grappling with the fallout of technical difficulties. There is risk the business never recovers to its former performance.
• The exit of online pure plays like Catch Group and Mydeal are near-term tailwinds, but this source of traffic growth to Kogan’s site could wane in the longer term.

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All prices and analysis at 24 February 2026.  This information has been prepared by Morningstar Australasia Pty Limited (“Morningstar”) ABN: 95 090 665 544 AFSL: 240 892.). The content is distributed by WealthHub Securities Limited (WSL) (ABN 83 089 718 249)(AFSL No. 230704). WSL is a Market Participant under the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited (ABN 12 004 044 937)(AFSL No. 230686) (NAB). NAB doesn’t guarantee its subsidiaries’ obligations or performance, or the products or services its subsidiaries offer.  This material is intended to provide general advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice.  Past performance is not a reliable indicator of future performance.  Any comments, suggestions or views presented do not reflect the views of WSL and/or NAB.  Subject to any terms implied by law and which cannot be excluded, neither WSL nor NAB shall be liable for any errors, omissions, defects or misrepresentations in the information or general advice including any third party sourced data (including by reasons of negligence, negligent misstatement or otherwise) or for any loss or damage (whether direct or indirect) suffered by persons who use or rely on the general advice or information. If any law prohibits the exclusion of such liability, WSL and NAB limit its liability to the re-supply of the information, provided that such limitation is permitted by law and is fair and reasonable. For more information, please click here.