"But you make the assumption that those employees have stayed at work (hence the ‘free’ labour).
Without a major contract, they are most likely working reduced hours, or having time at home. So there is no guarantee Korvest is getting that much free labour at all."
It's not an assumption I'm making, I spoke to the company during the past few months.
Their workers were at work.
Things were actually very busy.
While orders slowed, they continued production ahead of sales, to build inventory ($10.6m @ 30 June 2020, compared to $8.7m @ 31 Dec 2019, so a ~$2m build) in anticipation for increased product despatches in the current period, for new contracts that had been won.
Also, the nature of the KOV business, being a production facility, means that when order flow is slow, there is always maintenance that needs doing when the factory is not producing.
And, in a way, KOV management said, it was a good thing that there was a bit of a slowdown in business, because they were able carry out some investment and upgrades to the factory (this is borne out by the fact that PP&E expenditure was $2.3m in the last half, compared to just $0.9m in DH2019 and $1.0m in JH2019).
KOV Price at posting:
$4.40 Sentiment: Buy Disclosure: Held
