By Sue Mitchell
Online retail entrepreneur Ruslan Kogan has ambitious growth forecasts for Kogan.com in its first year as a public company but says he has no plans to "splash cash".
Mr Kogan, who will be entitled to sell part of his stake 14 months after the $50 million initial public offer, is expecting earnings before interest tax depreciation and amortisation to jump 138 per cent to $6.9 million in 2017 and net profits to rise sixfold to $2.5 million, from $400,000 in 2016.
This story behind his first foray into private label TVs provides some insights into his approach to business and why it has been sustainable.Credit: Simon Schluter
According to a pathfinder prospectus sent to prospective investors last week, revenues are forecast to rise 19.9 per cent to $241 million in 2017 and gross margins to widen from 14.5 per cent to 15.2 per cent, underpinned by growth in Kogan's travel and mobile operations and the expansion of its private label and third party brands.
Despite the ambitious targets, Mr Kogan, who started selling televisions in the garage of his Melbourne home six years ago, said the online retailer would adopt a disciplined approach to growth.
Revenue is vanity, profit is sanity
"We subscribe to the philosophy that 'revenue is vanity, profit is sanity'," Mr Kogan said in the pathfinder prospectus, which is expected to be replaced by an official prospectus later this week.
"We will strive to strike a balance between short-term profitability and investment in long-term vision and growth for the company. To put it simply, we don't splash cash," he said.
The forecasts do not include Kogan.com's recent acquisition of the online operations of collapsed retailer Dick Smith, which boosted the number of customers on Kogan's database by 1.3 million to 3.6 million people.
Kogan.com is planning to offer 28.4 million shares at $1.80 a share, raising $51 million. The e-tailer would have a market value of $168 million and an enterprise value of $140 million – representing a multiple of 20 times forecast 2017 EBITDA of $7 million.
The proceeds will be used to pay back $5.5 million in debt and fund growth, including investment in marketing and inventory.
Despite the hefty multiple, the collapse of Dick Smith and the poor performance of recent e-commerce floats, including Surfstitch and Temple & Webster, Kogan.com managed to lock in cornerstone shareholders for about $30 million of the new shares and a bookbuild closed on Monday oversubscribed.
Stand-out business
"It's been quite well received," said one fund manager, who declined to be named.
"Online retail is not particularly flavour of the month at the moment but the view is he's done an amazing job to get the business to where it is with no capital – that makes it stand out relative to some of the other online operators," the fund manager said.
While the profit growth forecasts were ambitious they were still "relatively small, he said, and Mr Kogan had scaled back plans to sell a larger slice of the company at double the valuation.
Mr Kogan's 70 per cent stake in the company will be reduced to 50.5 per cent by the issue of new shares and that of co-founder David Shafer from 30 per cent to 19.1 per cent.
Under voluntary escrow provisions, Mr Kogan and Mr Shafer will not be able to sell any shares until the release of the 2017 results, which is likely to be in August 2017, but could sell half their stock after August 2018.
Kogan.com shares are expected to commence trading on July 4.