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Daily ShareChat: Kathmandu

By Jenny Ruth

Tuesday 22nd June 2010

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 Jenny Ruth

Outdoor clothing retailer Kathmandu Holdings' current depressed share price does not reflect the company's true value, says Buffy Gill, an analyst at Goldman Sachs JB Were.

The company's winter sale started June 167 and runs until the end of July. "This is a key period for Kathmandu and is the biggest of the three major sales. Kathmandu generates about 70% of profit in the second half of the year," Gill says.

She is forecasting the rate of EBITDA (earnings before interest, tax, depreciation and amortisation) growth will slow from 41% to $18 million in the six months ended December to 14% to $43 million in the second half, "given the cycling of a high base and softer retail trading conditions."

The prospectus forecast second-half EBITDA of $42 million, confirmed by the company after its Easter sale.

"Kathmandu should benefit from the recent cold weather in Australia and New Zealand. The cold snap would come as a relief to retailers, given the late start to winter this year," Gill says.

At $1.55 last week, Kathmandu shares were trading at 10 times earnings for the year ending July 2011, a 16% discount to GSJBW's Small Industrials Index. "We do not believe this discount is justified given the company's solid growth outlook and that it is well below comparable retailers," she says.

Recommendation: Buy.


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