Weekly, Buy the Costa Dip | Pushpay | KMD| SHOP

17 January 2019

Weekly Report

Here’s your weekly update of news, analysis and research. The full reports can be read on the stock pages.

New Stock Reports
COSTA GROUP (CGC:AX) BUY: Shares Smashed Like Avocados
CGC shares got smashed at the start of the year, after a surprise profit downgrade for the
2019 financial year due to a difficult trading period over December and January. The
promising avocado category experienced weaker than expected demand, with a recent surge
in production suggesting the market may be near a saturation point over the near-term. The
Berries and tomato divisions have also experienced similar over supply issues, as weak
pricing is hurting Costa in the middle of its heavy growing season. We believe this highlights
the cyclical risks faced by the agriculture industry – but continue to maintain a positive
medium-term view as nothing fundamentally has changed and this update can be viewed
more of a one-off hiccup on CGC’s growth path. Our BUY rating remains very much intact,
with the recent fall providing an attractive entry point.
PUSHPAY (PPH:NZ / PPH:AX) BUY (High-Risk): Positive Cashflow
PPH shares started the year on a positive note, jumping on a well-received update over its
important Christmas quarter. Pushpay announced it has achieved positive operating earnings
and cashflow for that quarter, with positive cash flow expected to continue on an on-going
basis. With this hurdle overcome, the next would be to deliver a net profit which we anticipate
is not too far off given PPH’s ability to add large churches and impressive revenue growth
rate. Pushpay also guided that they remain on track to achieve their revenue target of
US$97.5m to $100.5m for the 2019 financial year, with gross margin improvement in the
second half (up to 60% from 57% in the 1st half) as they benefit from increased scale. We
remain buy rated on Pushpay. Despite what was been a difficult 2018 for the share price,
operationally nothing significant has changed in terms of the medium-term outlook. We feel

KATHMANDU (KMD:NZ / KMD:AX) HOLD: Difficult Path Ahead
Shares in KMD fell sharply on its trading update, as the Christmas period failed to deliver on
management expectations, offsetting the strong first quarter performance of the 2019

financial year. Despite expanding gross margins, same store sales across the group fell -1%.
We have held a cautious view towards the retail industry for some time now, and Kathmandu
have bucked the trend and continued to deliver growth in the past due to their unique product
offering. We think consumer spending particularly on discretionary items (such as the
products Kathmandu sells) will be under pressure over the near term as the Australian and
New Zealand economies see falling house prices and tightening credit. We believe the share
price fall has now partially reflected the difficult times ahead, although do not see much upside
potential at the current juncture.

SHOPIFY (SHOP:NYSE) BUY (High-Risk): Tech Sector Stand-Out
The SHOP share price rose +37% throughout 2018, far surpassing other stocks in the same
category, with the general IT industry only providing a +4.4% return. Stable year-on-year
growth for Shopify pleased investors, with the share price rising as much as +13% following
their latest quarterly announcement. Revenue continued to grow with a +57.5% increase year
on year. There was also an increase in expected revenue for 2018, with new guidance
representing expected yearly revenue growth of +55% to +57%. The current loss was a bit
higher than previous expectations, with adjusted net income coming in at $0.04 per share
instead of the anticipated $0.02 per share. We maintain our High-Risk BUY rating on Shopify.
Shopify is a stock suitable for investors with a high-risk tolerance and a medium-term view.

Stock ratings
Given the dynamic nature of share prices ’s rating can become out of sync with the projected total return as the share price moves. The rating
must only be viewed as valid with respect to projected total return at the time of rating or target price changes.
Individual stock ratings are determined by the projected total return on a stock.
Based on a current 12 to 36- month view of total share-holder return (percentage change in share price from current price to projected target price
plus projected dividend yield), we recommend the following:
BUY: Based on a current 12 to 36-month view of total share-holder return, we recommend that investors buy the stock
SELL: Based on a current 12 to 36-month view of total share-holder return, we recommend that investors sell the stock
HOLD: We take a neutral view on the stock 12 to 36-months out and, based on this time horizon, do not recommend either a Buy or Sell
This report may contain views, opinions, conclusions, estimates, recommendations and other information (Information). However, such Information
comprises general securities information only, and has not been prepared taking into account the particular investment objectives, financial situation
and needs of any particular person. Individuals should therefore assess whether it is appropriate in light of individual circumstances, or discuss, with
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(which may change without notice) or other information contained in this document. research is based upon information known to us or which
was obtained from sources which we believed to be reliable and accurate at time of publication.
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weekly 16 jan 19

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