KLM Group

[Lizard]

For any other eccentric value investors out there that like to be diversified beyond mining stocks...

KLM Group is a provider of electrical, data and communication services in the Australian market. Formed in 1980 by current MD, Peter Jinks, and his brother. Reached revenues of $22m pa by 1999. Acquired July 1999 by then-listed telecoms company, Pracom, for $6.5m. After Pracom melted down in the tech-wreck, the Jinks brothers were able to use another listed tech-victim, Eftnet Technologies as a vehicle to repurchase and list KLM Group in December 2002, paying a cash price of $2.3m.

The group made a 3 acquisitions in mid 2003 to increase geographical diversity, acquiring assets and operations in Western Australia, Victoria and Perth. So far in 2006, a further three business have been purchased, expanding into Adelaide and adding two businesses which increase the diversity of added-value services in the recently established "Technology Division".

The group has extended services in electrical service integration, audiovisual, building automation, energy management and asset maintenance. Future emphasis is on higher margin technology products such as automated lighting systems, audiovisual systems, video conferencing, security and access control and energy efficiency audits.

As a business, the company appears so far to have demonstrated steady capital management and candid shareholder communications.

In the year to June 2003, KLM Group had revenues of $35m for the full year of which $18.2m were recorded against the listed vehicle, with a net loss of $0.18m. In the June 2004 year, revenues grew 50% to $52.5m. However, substantial losses against contracts during the second quarter resulted in a final operating loss of $1.4m. An additional $2.0m write-down of goodwill and $0.2m write-down of tax benefit, resulted in a total $3.6m loss. This lead to greater focus in moving the company away from dependence upon large, low margin contracts, towards more specialist, technology solutions.

The year to June 2005 saw a further 16% increase in revenue to $61m, with a net profit of $1.92m. A maiden 1 cps final dividend was paid. At the current share price of 35cps, this is equivalent to a P/E of 10.7. Since then, the company has further expanded revenues by 39% for the half year to Dec 2005, giving revenue of $42.9m and NPAT of $1.13m for the period, despite moving from a nil-tax to full-tax paying position. A further interim dividend of 1cps has been declared, bringing the yield to 5.7% plus franking credits.

At half year, the company confirmed that it expects to exceed $80m in revenue for the full year, with second half profits in excess of the first half. This points towards a profit in the region of $2.4m, giving a forward P/E of 8.5 and a forward price/sales ratio of 0.26.

Looking forward, the company has managed to grow revenues by an average of 33%pa over the past 3 years. A continuation of high growth rates should see profits grow at a similar rate. While they will be vulnerable to any economic slowdown, I would expect them to be able to pass on raw material and labour cost increases in the current environment. Any growth in margins through the current strategic focus would be a bonus.

My current valuation is 67cps.

[Lizard]

KLM result out. Came in slightly ahead of target at $2.5m, with final dividend of 1cps. Revenue was ahead of forecast at $87m. Predicting some slow down in the Victorian market, but still forecasting revenue of over $100m for 2007. At 39cps, current P/E is 9.1, yield is 5.1% plus full franking credits. Free cashflow was ahead of profit at $3.3m

The company had $7.4m in cash at end of June (12.7cps) although around one third of this has been spent on the recent purchase of Allied Technologies.

I am currently allowing for FY07 NPAT of $2.9m, (eps 5.0cps). Valuation 73cps.

[tommy]

I'm surprised KLM share price hasn't increased that much since full year results announcement... yamn.

Taking a long time for market to wake up to the results, so gonna stick this one under the draw and take a look at it in six months time.

Still holding Lizard and KM?

[Lizard]

Yes, still holding. Seems to be a big seller out there doesn't there? Keeps the offer side well stacked since the announcement.

[Lizard]

Hunter Hall stumped up with a SSH notice for KLM yesterday. Amazing that they managed accumulate over 5% without really moving the price...[}]

Anyway, hope that marks the end of the big volume on the offer side. A few buyers moved in today to give the price a nudge up to 41cps.

[Lizard]

Closed at 45cps yesterday, with sellers at 47cps. New high for KLM group I think. Helped by Microequities releasing an upgrade to "strong buy" with a price target of 60cps.

[Snow Leopard]

Not the most heavily traded share on the ASX is it?
I may have trouble buying into this one.

[Lizard]

Bit of a problem for many non-resource stocks under $100m market cap. Liquidity is sporadic unless they are the subject of a Hotcopper ramp or catch the attention of the institutions. If they don't provide any action for the traders, it becomes self-perpetuating. (IMD liquidity was pretty similar a little over a year ago).

[Snow Leopard]

My enthusiamism for this stock is heightened by the discovery that it is not in fact the Dutch airline* or in anyway related to it.

*They once held an international flight up for over 30 minutes for the benefit of me and the tigress, and I hold them in awe ever since despite one of their stewardess covering me in orange juice partly:
because the turbulence over high over the Sahara can be very dramatic;
I have still not paid for the flight nearly ten years later.

[Lizard]

First quarter results contained in AGM presentation:

Revenue up 40% to $28m

EBIT up 69% to $1.2m

NPAT up 73% to $850k

Looks on track with my recent estimate of FY07 NPAT of $3.4m, so fully diluted forward P/E of 7.6 on current sp of 42cps, (plus cash of $7.5m or 12cps if I have it correct in my records post ATA acquisition?).