KDY (ASX) DW8 Growth

Originally posted by steve10: ↑

Higher interest rates & inflation will result in less disposable income. At 3.5% std variable rate for $600k the loan repayments are $2,695 pcm & at 5.5% they are $3,407 pcm = $712 pcm or $164.30 pw. Add weekly fuel cost rise + grocery price rises etc resulting in about a $250-300pw less disposable income. Less money for takeaway food, dining & drinking in restaurants etc. Since the price of fuel has gone up the past few months my local fish and chip shop owner mentioned it has been quieter. So the business may be affected by less people going out to drink on-premise but this would be offset by more people staying home & drinking like during Covid lockdowns.

There will also be wage rise pressure for the company in a rising interest rate & high inflation environment. Current wages growth is 2.4% pa but I expect this to get higher later this year. DW8 has $15M employee expenses x 2.4% = $360k pa but will most likely be around CPI of 5% = $750k pa. Cost of plant & equipment may also be up 5-10% due to inflation. Company hire purchase loans of about $1.15M is negligible as they would be fixed rates & amount owing is small. The 8.75% rate for Earlypay facility may be affected.

The company passed on a 5% price rise in July last year, 7% fuel levy in April & due for another 4-5% price rise in July this year. They are able to pass on price rises to offset higher costs.

Average household income is about $110k pa x 5% wage rise = $5.5k pa less 35% tax = $3,575 pa or $68.75 pw compared to weekly expense rises of $250-300pw. So less disposable income.

Dividend yields will have to rise in a higher interest rate environment. The spread between bond yields & average dividend yields is currently at all time lows. Share prices have to come down so dividend yields go up increasing the spread or alternatively bond yields have to come down. Historically share prices have come down so there may be further weakness for dividend shares with low yields. All Ords & ASX200 are still quite high, however, XTX is down significantly. All Ords & ASX200 may soften as dividend paying companies will have to fall so yields go up. Not sure if this will drag XTX lower as it's already down 31.6% from peak in November 2021. If anything investors may rotate from high priced, low yield dividend shares into high quality tech/growth stocks that are undervalued. Or just sit on side lines with cash earning risk free decent term deposit rate. Market sentiment is currently risk off.

Very hard to say what will happen with interest rates. Currently appears will raise 1.5-2% aggressively but that could all change once they get to 1% & decide to pause if they see global growth slowing, supply chain issues resolving, Ukraine war subsiding etc. Or it could become ugly with interest rates like the late 1980's when they were double digits. There are many variables at play. Looking at post Spanish flu inflation it appears to have peaked about a year after the final third wave then the following year there was massive double digit deflation. I think global central banks left rates low on purpose to inflate assets that will then deflate significantly. Let assets go up say 20-30% & then they come down 10-15% = overall still up whereas if they allowed assets to rise 5-10% & then they come down 10-15% is net negative.

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Thanks for taking the time to write that.

interesting times ahead.

when the swing to high quality tech growth stocks occur ill be happy that we are ready to go