@Alltypes, Thank you for those first-hand anecdotes about the...

@Alltypes,

Thank you for those first-hand anecdotes about the business.

Something certainly appears to be amiss with the business today. For starters, in terms of operating costs, it seems configured wrongly for the post-commodity boom world.

But your point about about it needing to be privatised or merged/acquired is very well-made: I think that if the current management can't restore profitability back to the business within the remainder of the current financial year, someone will come along and do it for them.

Because - with little doubt - there is significant value to be liberated, with the stock trading at a 30% discount to its NTA [*] (the lowest level that it has been for the 12-year period which is as far back as I checked, and compared to the average of roughly a 90% premium over that period).

KOV's Average Market Price-to-NTA
2005: 2.6
2006: 2.4
2007 2.8
2008: 2.5
2009: 1.5 [GFC]
2010: 1.9
2011: 1.4
2012: 1.3
2013: 1.8
2014: 1.9
2015: 1.6
2016: 0.9
Current: 0.68

[*] In Price-to-NTA terms - and to get Price to equal NTA, and not even to any historical-type premium - the current market value of the business is implying a massive 50% write-down of the carrying values of Plant and Equipment as well as a 50% write-off of all Inventories.

(Note: These two items (Plant & Equipment and Inventories) are the two largest individual items on on the asset side of KOV's balance sheet, accounting for almost 50% of Total Assets)


PS. The company is highly solvent, with no borrowings and with one-fifth of the current market cap being represented by net cash. The Current Ratio is 4 times and the business is still generating positive free cash flow, despite its accounting profits currently being in a hole.

There's a lot about KOV for a would-be acquirer to like, be it by an industry operator or from Private Equity player looking to make a bottom-of-the cycle acquisition in anticipation of accelerating infrastructure expenditure in coming years. Given KOV's abundant surplus capital, the company could easily be acquired exclusively with debt.