A little more than a week until the company reports its interim...

A little more than a week until the company reports its interim results.

At the AGM stage they were tracking at similar levels of activity as JH2022 and provided guidance that DH2022 business performance would be similar to JH2022.

As can be seen in the chart below (using EBIT as a proxy for business performance), DH2022 will match JH2022 for the second-highest EBIT level for the company (~$6.3m):




However, as can also be seen from the chart, DH2022 is cycling an unprecedented and exceptional DH2021 (EBIT of $9.7m), so - despite guidance for the DH2022 having been provided several months ago - there could still be some sticker shock on the day the results are announced, when the headline numbers show a 35% reduction in EBIT vs pcp.

Of course, what will be the relevant thing on the day will be what management's visibility is for JH2023.
If it is remotely along the lines of "continuation of the conditions of the first half", then any sell-off on the day (due to the dynamics described above) could present a good buying opportunity, I think.

Because that would mean full-year EBIT in excess of $12m, which would leave the company valued at 7.2x EV/EBIT which I don't think is overly demanding (unless one is of the view that the cycle is about to roll over for KOV, and we're headed back to the $3m EBIT per half of a decade ago).


One of the things I'll be looking for again in the upcoming result is what the determinants of the near-record EBIT margin are doing, because that's a case of two opposing stories:


1.) Increasing Cost of Goods Sold-to-Revenue ratio (i.e., reduction in Gross Profit Margin):



....which has been more than offset by:

2.) Decreasing Cost of Doing Business-to-Revenue:




Keen students of industry economics will know that, when it comes to maintaining competitiveness of a business offering commoditised products and services, that's definitely the direction you want those ratios to go, as opposed to the other way round.

Very hard to compete with someone who is relentlessly driving down their CoDB-to-Sales.