CAV - Cavalier Corp (Carpets)

[Snoopy]

I am cautiously optimistic in regard to their business prospects.

However, I wish the market would price a little more risk in to make the investment odds stack up...

Positive cashflow in the first 6 months came from significant reductions in inventories and receivables and was used to reduce debt to a more comfortable level. It seems to me that cashflow will likely have remained very tight during the second half and may continue to provide constraints around growing the business. So although they have done well to get this far without a capital raising, it would still seem possible. (Wonder if they could tap the NZDX for cash?).

I keep watching CAV, but hard to get excited unless offered an entry in the $1.10 - $1.30 region.

I agree that a capital raising is a possibility. Total debt is some $70m based around a net profit of $4.3m (FY2012) makes for a pretty ugly minimum debt repayment time.

MDRT = $70m/$4.3m= 16.2 years

The problem is this business is structured for profits around $14m to $17m per annum, which is what they did earn from FY2008 to FY2011 inclusive. Until profits look like being restored to a consistent level, the capital raising risk looks too great. Maybe if the cash issue comes that will be the time to jump in.

Incidentally, I don't agree that Cavalier is on the way out. Perhaps woollen carpets will not regain the popularity they had in the 1970s, before synthetics were around. But when I replace the carpet in my house I won't be considering synthetic. The fire retardant properties (or lack of) are enough to rule synthetic out for me, whatever the price savings.

SNOOPY