Significantly undervalued, page-6

Thanks for your message @ValueSearch.

"Per AR , JYC were holding $9min customer deposits, so net cash is 0"

I define net cash as cash and cash equivalents minus interest-bearing debt.

Cash @ 30/06/20 was $10.6 M + $3.3M (refer to note 14 - proceeds from sale of Lloyds received in September) - $0.2M (allowance for exp. credit loss [I haven't heard anything further on this so I'm assuming the full $3.3m was received but for conservative reasons I'll assume net 3.1m]) = $13.7m cash

interest-bearing debt @ 30/06/20 = $0.5m ST debt + $5.2m LT debt = $5.7m

Therefore, net cash = 13.7m - 5.7m = $8m net cash

As said in my previous post, I am aware that JYC has paid 2.8m in dividends since 30 June, however, I suspect that they will generate FCF in excess of this amount for the six months to 31 Dec 2020. Therefore, net cash (I expect) will be at least $8m at the end of CY 2020.

In regards to your comment of subtracting $9m from cash because of customer deposits. I disagree with that reasoning for two reasons: (1) It's a prepayment customers have made for their kitchens upfront which is not a cash liability to JYC so long as the company is able to deliver the promised goods in the future; (2) I think of this as an "interest-free loan" from the customers which is used to help fund JYC's working capital. WEB may refer to this as a type of "float".

This (customer deposits) is the primary reason why JYC has negative working capital and IMO is one of the more attractive features of this business. Its customers are paying the company cash up front for goods that will be delivered at a later time. The customers are essentially financing the company's operations & growth through prepayments. Best of all the interest rate on this financing is 0%!

"Reported EBITDA was $16.6m which included $2.8m in Govt Grants (Jobkeeper) and also $0,5m rent on properties. That leaves about $13.3m EBITDA. How do you get combined $20m EBITDA?"

Thanks for pointing this one out as there was an error in my numbers.

EBITDA should have been $12M (prev. $15M) for KWB Group & $4m (prev. $5m) for Bedshed as I forgot to include rent expenses which are accounted for in amortisation & interest expense.

In terms of EBITDA calculation, I refer to pg 70 of the AR - Note 5 Segment Information.

Operating income (EBIT) for Bedshed (includes both retail & franchise) was $1.8M. This however is understated from the goodwill impairment (note 6 - pg 74) of Joondalup store of $1.8M and must also add back depreciation of $1.3m - $0.8m (my estimate of share of rent expense which is included in amortisation & interest but is not separately allocated to division). Therefore, Normalised EBITDA = $4.1 million

EBIT for KWB Group is stated as $11.3m + $3.2 m D&A - $3m (rent included in amortisation & interest) = Normalised EBITDA $11.5m

I may be wrong but I believe that the JK subsidies & rent you are referring to is included in the "unallocated expenses net of unallocated income" item line of the segment info on pg. 70.

Just in case you're interested, I've proportioned rent expenses which were picked up in amortisation ($3.26m - pg.74/note 6) & interest ($0.58m - pg 101/note 25) based on the revenue of each segment. Since KWB accounts for 77% of group revenue (67.5m / 87.6m) I've therefore attributed $3m in rent expenses (77% x $3.84m) to KWB & the balance ($0.8m) to Bedshed. This is an imperfect way to arrive at figure, but a rough estimate nonetheless. Hopefully this clarifies any questions with the above calculation.

Revised valuation

As I said in my previous post, I am not trying to be precise with valuation here, rather just trying to highlight the fact that the company trades at a steep discount to underlying value. You could make the argument that KWB Group & Bedshed are deserving/would sell for a higher multiple in the private markets than what I've suggested that they're worth here considering the higher public market values of some of their peers. Regardless, I think its pretty obvious that Joyce is materially undervalued.

$AMmethod / calculationBedshed16 - 244x 4m - 6x 4mKWB Group (51%)37 - 616 x 12m x 51% - 10x 12m x51%Real Estate15BV + FVNet cash8BVMinority interests-4BVEquity value72 - 104 (2.60 - 3.70 / sh)SOTP
Disclosure: This is my portfolio's largest position and my avg. cost price is significantly lower than current stock price.