The Kathmandu Holdings Ltd [NZX:KMD] share price has leapt over 8% today after buying activity kicks back into gear after a trading halt.
Kathmandu is one of New Zealand’s largest retailers of outdoor clothing and equipment.
Right now, the share value currently sits at $0.88, still near a four-year low. The company has a market capitalisation of $259m.
As with many retail businesses in COVID-19 forced lockdown, investors have been concerned as to how the company will survive this period.
Why has the [NZX:KMD] share price risen?
Kathmandu released a share-placement plan this week. They were attempting to raise $207m through the sale of new shares to large investment funds — with the balance going to existing shareholders.
CEO Xavier Simonet announced that the company wanted to take protective action fast:
‘The board is taking pre-emptive action with the capital raising announced today, to ensure our group remains strongly capitalised during the current market uncertainties.’
The shares were offered at a bargain price of 50c each.
Before the COVID-19 shock, Kathmandu had released a mixed but positive earnings announcement.
Revenue was up 56.7% to just over $360m. But profits were down due to associated interest and absorption costs from the purchase of Rip Curl surfwear last year.
The share placement was not fully funded. Kathmandu announced yesterday to the market:
‘The Institutional Entitlement Offer and Placement… raised combined gross proceeds of approximately NZ$154 million. Both tranches received strong support from Kathmandu’s existing institutional shareholders. In respect of the Institutional Entitlement Offer, outside of Briscoe Group which elected not to take up its pro-rata entitlements, eligible institutional shareholders elected to take up 96% of their entitlements.’
Although the placement was scaled back and did not raise the intended $207m, it appears the market today is more confident in the company’s ability to get through COVID-19 and continue positive growth on the other side.
Where could [NZX:KMD] go from here?
It remains to be seen when the lockdown will end and how long it will take for retail businesses to stage a recovery. On one hand, there may be a lot of pent-up spending waiting to happen. Government stimulus is helping.
Yet, on the other side, we may face a very different economy with increased unemployment, recessionary concerns, and a much more cautious approach to discretionary spending.
Kathmandu is an experienced and proven retailer. Many consumers may be looking forward to resuming outdoor activities and buying the gear they need. Investors need to balance this sentiment with the essentiality of what Kathmandu sells in a post-COVID-19 world.
The share placement at 50c seems to have set a low bar. It will be interesting to see how investors continue to feel about this stock. By any conventional metric, based on recent earnings, it is sitting at strong value in normal times.
These are not normal times.
PS: Where might we be seeing bargain hunting opportunities this week — perhaps with less uncertainty? Find out by subscribing to our Premium Research.