Joyce remains a tough case for at least 3 reasons : - the poor liquidity of its stock, - the average quality of their portfolio, out of their holding in KWB, - the difficulty to read its accounts.
1/ KWB First, I need to say that KWB (owned at 51 % by Joyce) is a remarkable company. For more details, you can look at my comment about it yesterday in the thread "What about the non food retail sector" (in ASX-General).
Only element I would add. During H2 23, KWB increased its normalised EBIT by 50 % yoy (+ 16 % for sales) vs + 12 % both for sales and EBIT during H1 23. Their EBIT margin increased from 17.8 % during H2 22 to 22.9 % during H2 23. This was achieved, despite cost increase, by an increase of their prices and decrease of some of their costs (warranty costs in particular). So far in FY 24, KWB has only a "marginal" decrease of its sales, another evidence of its resilience.
2/ Rest of the portfolio The problem with Joyce is the quality for the rest of its portfolio. Bedshed business may look also interesting, but all the EBIT profit of Bedshed has been absorbed by the other activities. Another way to see it : almost of the published EBIT* during the last 2 years comes from KWB.
3/ The difficulty to read its accounts Looking at its balance sheet and cash flow statement, Joyce may look really cheap with a market cap of 88 m$ (at 3.10 $), while the company has a free cash flow of around 15 m$ and 46 m$ of net cash. However, this does not reflect the real situation of Joyce, as the elements above are calculated based on a consolidation of KWB at 100 %. So, as Joyce only owns 51 % of KWB, we should consider only the free cash flow excluding the minorities in KWB, as well as the net cash excluding the cash owned by KWB**(if we value KWB based on its cash flow).
4/ Estimated valuation of Joyce Based on the elements above, I think that Joyce valuation comes from 2 elements : - value of its 51 % in KWB, - net cash out of KWB (16 m$).
Regarding the value of the 51 % in KWB, I estimate that all the free cash flow of Joyce comes from KWB (more or less like EBIT) and the free cash flow excluding KWB minority interest is around 7.5 m$. A fair value would probably be based on a free cash flow yield of 7 % to 10 % (Nick Scali has now a free cash flow yield of 7.4 %). Taking the middle of the range, I get a total valuation of 107 m$ for Joyce (including net cash out of KWB) or 3.80 $ per share.
* excluding the gain of revaluation of KWP property during FY 22. ** KWB has 30.4 m$ of cash, including 12.2 m$ of customer deposits.
