Consensus community valuation
$1.250
Average Intrinsic Value
47.1%
Undervalued by
Active Member Straws
#Substantial Holding
Added a month ago

Samuel Terry doubling down on KPT after its massive fall.  Brave.

25-05-20 KPT Samuel Terry 26.3% [14.82m] from 23.6% [13.13m]

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#Risks
Added 5 months ago

09-Feb-2020:  On 31-Jan-2020, KPT requested an extension of their voluntary suspension from trading  until the Company is able to inform the market on:

  1. The insurance settlement pertaining to the fire damage; and
  2. The financial impact and effect on operations to the Company due to the fire damage.

The Company advised that during this extended time:

(1)  It will continue to complete the following tasks, which it believes must be undertaken in order to ensure an orderly market in its securities.

  • to assess the extent and severity of damage to its timber plantations and those of independent tree growers;
  • to investigate opportunities to sell fire-affected timber;
  • to make any necessary changes to its arrangements with its insurers, bankers and project partners;
  • to determine its future business strategy and the extent of planned replanting activity; and
  • to determine the extent of fire-related impairments to the carrying value of its land and timber assets.

(2)  In addition, the Company will use the extended time:

  • to mitigate risks for the rest of the fire season and future fire seasons;
  • to assist the Kangaroo Island community and independent timber growers;
  • to work with government and the community on the economic recovery of the Island economy; and
  • to make progress towards a favourable conclusion of the development assessment process for the KI Seaport, which remains critical to the Company’s medium and long term future.

They have released a number of updates regarding damage estimates to date (~90% of their KI timber plantations have been severely fire-affected) - which can be accessed from here:

https://www.asx.com.au/asx/statistics/announcements.do?by=asxCode&asxCode=KPT&timeframe=D&period=M6

It's clear that KPT, when they do resume trading, will open substantially lower than the $1.96 that they last traded at before being suspended.  They do have insurance, but it won't cover everything.  And they still don't have permission to build the deepwater seaport near Emu Bay that is central to their business plan.  Some would argue that the devastating and unwelcome severe fire damage across much of Kangaroo Island (KI) that has destroyed around 90% of KPT's timber (using their own preliminary estimates) perhaps weakens their case rather than strengthens it, particularly when you consider that they will now need to clear all of that land and replant it with new seedlings, so the business case is arguably less pressing now.  

I'm not a shareholder in KPT, but I do support what they are trying to do.  I think that an export seaport would boost industry in general, create further employment, particularly in the forestry industry, and that sustainable plantation forestry could be an important future industry for an island that needs all the help it can get, now more than ever. 

If KPT gets smashed down to rediculous levels when they recommence trading they might be worth a good look.  They would certainly not be without significant risk, and are certainly right up there at the speculative end of the spectrum, but worth a look nonetheless.  Doesn't mean I'll necessarily buy KPT shares, but they're on my watchlist.

Further Reading:  KPT is the 6th largest holding in Tony Hansen's EGP Capital's "Concentrated Value Fund" (EGPCVF) now (or as at Jan 31), having been the fund's 4th largest position at Dec 31, and their 3rd largest at Nov 30, 2019.  The reason they've dropped to #6 in Jan is that Tony has marked the stock value down to $1.50 per share, saying on page 1 of his EGPCVF January 2020 Report, "We think there’s a good chance the shares will trade lower than that at least initially when the stock resumes trading but given the significant insurance payments the company will be due, the considerable land value and the generally decent survival rates of fire-affected E. Globulus, we think there’s a reasonable chance the price will settle around that level."

Reading through recent KPT announcements, including their December Quarterly Report which was released on 31-Jan-20, it appears that the survival rates are a lot lower when the tops of the trees (the canopy) is destroyed by fire (rather than realtively minor ground fires) and KPT's initial damage estimate of 90% does appear to refer to trees with significant canopy/crown damage, so it does seem quite likely to me at this early stage that around 90% of KPT's trees will need to be felled and replanted from seedlings.  Some of those trees will have some salvage value, but they won't be able to be left to grow on from here.  Let's hope that the salvage value exceeds the costs associated with the felling, clearing, and replanting that will be necessary, or if not, that the insurance payouts cover most if not all of the difference.  Time will tell.

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#Bull Case
Added 3 months ago

I bought today.

 

I cant add on the strawman system due to insufficient funds!

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