Pinned valuation:
Valuation deleted
Excellent pick up and analysis there @SudMav about their FY26 one-off new building expenses at Kilburn meaning lower dividends and the likely market reaction when the quantum of the dividend reduction is revealed in August and/or February.
I know the site reasonably well, having worked there around 20 years ago and passing it regularly since then, and while they do have some free space to the immediate north of their current office and shed, I would expect some disruptions and issues with production during the new building construction, as they are still going to have to find alternative places to store finished goods as well as raw materials such as steel which have been stored there - where I reckon the new building is going to be built. Unless they have bought a neighbouring property it is likely to be difficult to maintain BAU during construction.
However once they are through that period, their earnings capacity is going to increase and their dividends should, all else being equal, return to their historic (recent years') well-above-market-average levels, so certainly could be a decent opp if they do get sold off as expected, but not sure when the best time to buy would be, i.e. if they have 2 legs down or just one with the dividend declaration. Might be at least one earnings/production guidance downgrade during construction as well, so not sure if I'd be buying my full weighting on the first sell off in case there's another one. But certainly an opportunity there IMO also, it's just a matter of timing and expectations.
LYL is a great analogy and would be even better if LYL had already bounced back to higher levels after raising their dividends again, however neither of those things has happened yet, we just expect that they will. I certainly do anyway. Today's SP rise was nice, but the real move with LYL's SP will come when the div's return to prior levels. So Aug and/or Feb.
LYL could be recovering just as KOV is heading the other way.
I don't hold KOV, but I reckon I will hold them at some point in the next 18 months if things pan out anywhere close to what we are expecting @SudMav .
I've got $200K of LYL in one real money portfolio and it's one of my two largest positions here on SM as well - it's usually at #1 or #2 depending on the share price. It's easily my largest position IRL. So I like these sorts of setups clearly. I wouldn't be putting the same amount into KOV, but around $50K to $70K might produce a nice little gain if I time the buys right and then maintain enough patience to allow the thesis to play out. And that gain will likely come from TSR (CGs + divs). Just like LYL. The lower weighting with KOV vs LYL would just reflect the nature of the two businesses and their different business models on multiple levels (capital intensity, global vs Australian TAM, opportunities for expansion based on existing businesses, etc.) and their respective management teams with me personally being far more comfortable with LYL's management and larger upside potential, but then I don't follow Korvest as closely as you do as a shareholder @SudMav.
BTW, also an excellent call on your previous $11 Valuation - which KOV hit and got above today after being below $9 briefly at one point in early April (three months ago).
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I'm over in WA currently. Seemed like they got all of their July rain in one night during my drive down South from Perth last night. A little aquaplaning but otherwise a fun drive down in a hired Kia Sportage - with water pooled over the road in many sections and up to a foot deep in places.
And then at one point today I felt I was getting sunburned! Like Melbourne, only not all four seasons in the same day. Just flooding rains one day and then mostly sunny the next.
It's a beautiful part of the world - Busselton, Dunsborough, Margaret River - and some good red wines down here too. Not as good as the Barossa, or the Clare Valley, or McLaren Vale, or Coonawarra, but pretty good.
Take 2 as I lost my post when my computer crashed
Thanks @Bear77 and @PortfolioPlus for your additional content. From my assessment I was also not expecting them to have any downtime from the upgrades, with the only planned outages likely to be approx 1-3 weeks when they change over the kettle at the end of the year. This is another expense that will impact their cash flow next year.
I still believe in KOV as a long term business as they have been making lots of changes to reduce their margins and keep competitive. The investment into the third auto tray line and robotic cells will open up further opportunities for increased revenue in the future. They are well positioned and they have flexibility to take advantage of short term customer orders to maximise profits, which has occurred a few times over the past few years and boosted their NPAT.
I would like to flag @bear77 that KOV is a very thinly traded stock market cap (approx. 100m) which is significantly less than LYL (appro 400m) and typically has less than 50,000 change hands on a daily basis. Any potential purchase of the magnitude you are talking would likely put upward pressure on the pricing as there is not a lot of volume (see pics below). This is slightly exacerbated as we are getting close to results, however the thinly traded nature of this one sometimes leads to changes in the range of +/- 10%.
This low trading activity was another reason I trimmed, as any future rush for the exits could really push prices down, and this is why I slightly revised the price range of this one down in my calculations.
