KKT - Konekt

[Lizard]

Odd little micro-cap this one. Seems to offer some specialised employee management services with a focus on health and risk management. Can't remember whether it was the subject of a ramp at one stage or just another tech-wreck victim that has taken a decade to get it together...

Anyway, seems to be pulling itself together and latest result looks good with strong cash generation. On latest profit, fully diluted P/E is about 7.9 at 15cps. Paying a maiden (?) div of 0.5cps. EV/EBIT about 4.8. Nice ROE/ROIC figures, but perhaps they destroyed a lot of investment capital along the way?

Hard to tell if it's just a case of one good year or beginning of a growth story, but might be worth a closer look one quiet day.

[percy]

Odd little micro-cap this one. Seems to offer some specialised employee management services with a focus on health and risk management. Can't remember whether it was the subject of a ramp at one stage or just another tech-wreck victim that has taken a decade to get it together...

Anyway, seems to be pulling itself together and latest result looks good with strong cash generation. On latest profit, fully diluted P/E is about 7.9 at 15cps. Paying a maiden (?) div of 0.5cps. EV/EBIT about 4.8. Nice ROE/ROIC figures, but perhaps they destroyed a lot of investment capital along the way?

Hard to tell if it's just a case of one good year or beginning of a growth story, but might be worth a closer look one quiet day.
Looks a potential wee cracker.Debt repaid from cash flow..Looks as though they had a UK joint venture that did not work out.Look forward to your analysis once you have had a closer look.

[Lizard]

Hi Percy,

I had a little more of a look at KKT. The June microequities presentation is well worth a read. They seem to have quite a high level of awareness of their shareholders and their share price performance - although that might just mean they are taking the opportunity to talk about it while the going is good and shareholders are relatively happy with them! However, although heading in the right direction, I don't see too much certainty for an improved profit in current year.

Firstly, they will have to be tax normal in their reporting (though not cashflow), although I allowed for that in the P/E figure of 7.9 from my first post. More worryingly was the statement in the May presentation that the last quarter profitability was being impacted by "file portability in NSW as a result of the recent tender". So not only bad news, but bad use of jargon to soften the meaning. The degree of bad news is borne out by the "balanced scorecard" charts that show April as being particularly bad. On the other hand, they appear to have won a Queensland tender in July, so perhaps that will balance it out? The outlook statement in the FY result remains positive, albeit in a rather optimistic, broad-based way (i.e. we're aiming for organic growth, we're putting together some new product offerings, we might make some acquisitions). I'd be reluctant to read too much into it at this point and would prefer to wait until half year, where they will likely struggle to beat the strong pcp.

As an aside, came across this interesting slide in their May presentation which is worth considering when looking at the profitable micro-caps and trying to create some sort of price benchmark for them:

http://img.villagephotos.com/p/2006-8/1204598/Picture%201.png.jpg

[percy]

Hi Percy,

I had a little more of a look at KKT. The June microequities presentation is well worth a read. They seem to have quite a high level of awareness of their shareholders and their share price performance - although that might just mean they are taking the opportunity to talk about it while the going is good and shareholders are relatively happy with them! However, although heading in the right direction, I don't see too much certainty for an improved profit in current year.

Firstly, they will have to be tax normal in their reporting (though not cashflow), although I allowed for that in the P/E figure of 7.9 from my first post. More worryingly was the statement in the May presentation that the last quarter profitability was being impacted by "file portability in NSW as a result of the recent tender". So not only bad news, but bad use of jargon to soften the meaning. The degree of bad news is borne out by the "balanced scorecard" charts that show April as being particularly bad. On the other hand, they appear to have won a Queensland tender in July, so perhaps that will balance it out? The outlook statement in the FY result remains positive, albeit in a rather optimistic, broad-based way (i.e. we're aiming for organic growth, we're putting together some new product offerings, we might make some acquisitions). I'd be reluctant to read too much into it at this point and would prefer to wait until half year, where they will likely struggle to beat the strong pcp.

As an aside, came across this interesting slide in their May presentation which is worth considering when looking at the profitable micro-caps and trying to create some sort of price benchmark for them:

http://img.villagephotos.com/p/2006-8/1204598/Picture%201.png.jpg

Thank you Lizard.
I missed the scorecard.Does not add up to what they are saying.With 41% of revenue from NSW the scorecard implies they have lost a huge part of their business."file portability" is not a statement I trust.Very bad use of jargon as you rightly pointed out.Yes sage advice {as always} will wait for half year result.Again thank you for your analyst"s view.

[Joshuatree]

Picked some up in Aug @ 23c out today @ 32c. Have more growth ideas elsewhere atm; back on the watch list.

[percy]

An absolutely stunning result.
NPAT up 70% and we will get an0,05cent ps divie.!!!
Outlook is also very positive.

[stoploss]

An absolutely stunning result.
NPAT up 70% and we will get an0,05cent ps divie.!!!
Outlook is also very positive.

Even better they managed to slip a " well positioned " in there as well.

[percy]

Even better they managed to slip a " well positioned " in there as well.

Just the confirmation we needed.!! lol.

[Joshuatree]

Been watching awhile. re 13% drop today on contract change with large client.Unknown if any impact on rev atp.

[stoploss]

Been watching awhile. re 13% drop today on contract change with large client.Unknown if any impact on rev atp.

Ouch.........
DISC : Sold 50 % @ 56 cents.

[percy]

Well KKT have gone back to being my second largest Aussie holding.!!
Ouch indeed.
In reality I would think it is an ongoing business arrangement.
People renegotiate leases,terms of trade,etc,so it has to be expected MHS being a major client wants to renegotiate contacts.
I have held EBO for years.The have to renegotiate contracts with hospitals,governments and suppliers.
A good successful business retains contracts.
At this stage I see no reason why KKT cannot retain these contracts.
I would also think it would be easier for MHS to negotiate with KKT rather than a lot of small service suppliers.
Maybe a "window of opportunity" for KKT?.

[DarkHorse]

Yeah ouch - Medibank playing hardball. I see even 2 years ago Medibank were struggling to make a buck out of their contract with the Australian defence force - with KKT one of two suppliers - https://ama.com.au/ausmed/medibank-struggles-make-buck-out-defence-deal
Relatively small beer for Medibank though, and hard to see them wanting to switch to smaller less reputable suppliers. Would be nice to know if this is KKT's biggest client (30% revenue) - I got in a few months ago, are any of you longer term holders up with that?

[percy]

Started buying around August/September 2015 at 21 or 23 cents.
Been adding since.
Yes I think they are their biggest client.

[DarkHorse]

Thanks for the info Percy. Well spotted back then - always great to find under the radar little companies with such a great niche and management who've proven they can execute on their strategy. (Just been reading Jim Collins 'Great by Choice' - execution much more important than innovation in business success)

[percy]

Not sure whether I followed Noodles,Lizard, or DMX into KKT,but on checking I brought in on 10th September 2015 at 21.68 cents,more on 8th October 2015 at 25 cents, and my last purchase was on 11th July 2016 at 42 cents,taking my average purchase price to 27.072 cents per share.
I look forward to DMX's January portfolio news ,which will be out early February, to see what they have to say on KKT.They have a brilliant analyst, who knows KKT well.
You recommended "Great by Choice" by Jim Collins once before.I thought it was fantastic read thank you.

[stoploss]

Well positioned gets a mention Percy ...

http://stocknessmonster.com/news-item?S=KKT&E=ASX&N=998347

[percy]

Well positioned gets a mention Percy ...

http://stocknessmonster.com/news-item?S=KKT&E=ASX&N=998347

Thanks for bringing it to my notice.
I was not expecting the announcement until this morning.
What a fantastic result.
Just have to wait and see how their contract negotiations with MHS turn out?.
Oh yes it is so reassuring to be "well positioned,"...lol.
The PE of 15.51 looks very modest compared to the current eps growth rate of 63%.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[Joshuatree]

Got some at 53c.Banking on MHS being sorted.Maybe this is why a muted reaction on the mkt today.Only 1 comment on that other site and re 170,000 through ; s/p 56c atm.

[percy]

Got some at 53c.Banking on MHS being sorted.Maybe this is why a muted reaction on the mkt today.Only 1 comment on that other site and re 170,000 through ; s/p 56c atm.

Certainly sorted with new contract with MHS being announced yesterday.
Profit guidance confirmed, and margins remain strong.
The continuing share buy back is also positive.

[Joshuatree]

Thanks, missed that one. A welcome positive amongst the littered wrecks of my small caps atm.

[percy]

Pie Funds have brought another 764,880 shares between 52cents and 60 cents,taking their holding to 4,445,286 or 6.10%.

[Joshuatree]

Big buy with mkt cap sub $41 mill. One for Five rights issue @ 48c for holders

From AFR:

ASX-listed workplace and employment outsourcing company Konekt is seeking investor support for a $24 million acquisition and associated equity raising.
Street Talk understands Konekt has agreed terms to buy NSW-based jobs search company Mission Providence - a leading provider of employment services under the federal government's jobactive program.
Mission Providence has a national footprint with 85 branches, more than 400 staff and $51 million revenue in the 2017 financial year, according to numbers in front of potential investors on Wednesday morning.
Konekt will fund the acquisition via a $32.7 million financing package, including an $18.3 million debt facility and an equity raising.

The equity raising was split into an institutional placement of 18.2 million new shares at 48¢ each to raise $8.7 million, and a one-for-five rights issue to raise another $7 million.

Both components of the raising were underwritten by stockbroker Taylor Collison.
Konekt shares last closed at 56¢.
Taylor Collison was calling for bids into the placement by 5pm on Wednesday.
Konekt is expected to announce the acquisition and equity raising later this week, along with the company's full year results.

[percy]

Trading halt.
An excellent post on HC by Peter doobes gives a lot of details;
So a $32.7 mil acquisition of Mission Providence.This is a big one as KKT's market cap at 56 cents is $40.8 mil.
Placement at 48 cents to raise $8.7mil and a one for five rights issue to raise $7mil.
KKT will also fund the acquisition with $18.3 mil of debt.

ps Thanks JT.

[Joshuatree]

Results look great to me and the future better
Download Document 250.81KB (https://hotcopper.com.au/documentembed?id=uOMxKKzFkiWRTLKhOROKAxjvSDYL4wy0z hfzv%2Fxy67FiGug%3D)

[percy]

Results look great to me and the future better
Download Document 250.81KB (https://hotcopper.com.au/documentembed?id=uOMxKKzFkiWRTLKhOROKAxjvSDYL4wy0z hfzv%2Fxy67FiGug%3D)

Thanks for the link.
Last trade was at 52 cents.I was expecting them to open closer to 60 cents.! Wrong again.So looks as though the sp is moving down closer to the placement/rights issue price.
Just hope the paper work comes through in time for me to take up my rights at 48 cents.

[percy]

Paperwork arrived yesterday.Delivered to Craigs this morning,who will do the payment etc for me.Offer closes next Friday 8th September.

[DarkHorse]

Given the processing fee for Bpay it may be cheaper to buy on market (albeit you probably have a much larger parcel) - closed at 49 cents today. Good entry price for those who don't already hold.

[percy]

Pleasing reading that the rehabilitation contract with MHS [Medibank],has been extended fom October 2018 to June 2019.

[Joshuatree]

Took up mine.S/P holding @ 50.5c .All the directors took up their SPP and more. $15.7 mill raised,$7 mill from shareholders but some applied for topup. Dr Flynn now a subst holder.

[percy]

Did not like the result.
Sold.

[Elles]

Did not like the result.
Sold.
Seems you were not the only one! Anything in particular that put you off? Seems things are going in the right direction but end results was poor due to acquisition of Mission Providence. Would appreciate any further thoughts.

[percy]

A few things I did not like.
I noticed a few weeks ago the chart showed a steady down trend,however I thought I would wait for the result,before deciding what to do.
Number of shares on issue increased 45%.
NPAT [before amortisation] up only 16% to $1.92 mil from $1.75mil.
eps gone from positive 2.45 cps to -[1.33] cps.
$1.7 mil lower revenues from existing business and lower margins.
The balance sheet does not look good, with the huge increase in intangible assets.Net assets are shown as $28.9 mil, yet if you deduct the $46mil of intangibles, you have negative equity of -[$17.1mil].
It is worrying that current liabilities are extremely high at $31.9mil, compared to current assets ,including cash, of only $19.4mil.
Cash flow is also negative.

[Elles]

Thanks percy. I will see how it plays out as it seems many of those issues relate to the acquisition, next result should give a better idea on its future contribution - and hopefully a better result.

[Joshuatree]

I think they may come right but im not prepared to hang around that long or take the risk. I will be out prob monday, i may get a little more price wise after the rush out today, biggest vol in nearly 2 years

[percy]

Thanks percy. I will see how it plays out as it seems many of those issues relate to the acquisition, next result should give a better idea on its future contribution - and hopefully a better result.

I agree many of the issues relate to the acquisition,which was a huge one.
And yes the next result should give a clearer picture of where they are, and where they are going.

[Elles]

Anyone still holding this one? It's more than halved since the last posts...

[percy]

Anyone still holding this one? It's more than halved since the last posts...

Yes unfortunately.I am reminded of the old saying,:"A long term holding is the result of a short term holding that did not work out."..lol.

[Elles]

Looks like any holders will be bought out soon! Happy to get out with a small profit.

https://www.asx.com.au/asxpdf/20191008/pdf/4498s84qrdr2p8.pdf

[percy]

We got lucky.!!

[Elles]

We got lucky.!!
KKT now officially delisted. Did you hold out till the end? I didn't expect the higher offers coming so sold out too early - but still happy with my decision at the time.

[percy]

I sold mine at 41.5 cents on 16/2/2018,however the trust I am a trustee of, held until taken out.[This was because I forgot the trust held some.!]