The vast majority of Kelsian's bus business is dependent on winning tenders for bus contracts. This is often capital light because the governments often retain ownership of the buses and depots but, of course, there is the risk of losing contracts at the tenders. It has been a credit to Kelsian to have won as many tenders as they have whilst up against Kinetic and CDC in Australia. Both opponents have overseas backing (Canada and Singapore) and, in Kinetic's case, seem to have been given free rein to win contracts at all costs. There does at last seem to be some accountability starting to appear at Kinetic and hopefully future tenders might have better profitability. Having said that, there is always another operator keen to have a crack at a contract here and there.
If you don't like this risk or don't have faith in KLS winning future tenders, I would suggest investing elsewhere. This type of business does make it hard to value KLS. I have been on board since early SLK days and have enjoyed the ride so far.
KLS Price at posting:
$3.24 Sentiment: Buy Disclosure: Held
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