2010 Media Releases

Deutsche Bank (XETRA: DBKGn.DE / NYSE: DB) has initiated coverage of Kathmandu Holdings (ASX: KMD) with a Hold recommendation.

Research analyst Raymond Gonzalez said, “While we appreciate that at current levels Kathmandu Holdings may appeal to some investors on a relative valuation basis, we see limited scope for outperformance until the company establishes a track record of meeting market expectation as a listed entity.”

Deutsche Bank is positive on the retail sector in general, but the analysts believe cost pressures could negatively impact Kathmandu Holdings, which is exposed to rising input costs of raw materials with about 80% of its goods manufactured in China. Other rising costs include labour in Asia, international and domestic freight and wages in Australia.

While some of the cost pressures will be offset by a stronger AUD, Deutsche Bank expects Kathmandu Holdings’ gross margins to decline in 2011 and 2012.  Meanwhile, growth from its projected store rollout – the analysts forecast 15 new stores in each of 2011, 2012 and 2013 – should provide a buffer to any potential macroeconomic headwinds such as softening retail conditions and downward trending consumer sentiment.

Gonzalez said, “While we do believe the stock has the potential to rerate at some point if comparative store sales and earnings results improve, at this stage of the cycle the timing of such a rerating is difficult to predict. Therefore, we would prefer to wait until visibility improves and prefer exposure to department stores on a risk-reward basis.”

Kathmandu Holdings is a specialist clothing and equipment retailer for the travel and adventure market. Historically, the company has grown organically through its store rollout program and currently has 97 stores across Australia, New Zealand and the UK with 1,562 employees.

For further information, please contact:

Deutsche Bank AG    
Name : Amy King   
Phone: +61 (0) 2 8258 2505
E-Mail: amy.king@db.com