Ann: Special Dividend , page-8

alnby, this reminds me of ARP, who have done the same thing over the years.

Essentially, it is a mechanism for the expunging of surplus franking credits that have built up over time (At 30 June 2013, KOV had $12.8m ($1.47/share) in excess franking credits. By the end of this year, given the levels of profitability being enjoyed, that balance will have grown even further.

I suppose I should have seen this special dividend coming, because the notes to the company's 2013 accounts show the transfer of Retained Earnings to the newly-created Profits Reserve account whose characteristics specifically enable the payment of dividends. (For context, Retained Earnings as at June 2012 totalled $28m).

So that I understand to be an eminently sensible gesture by the board.

But, like you alnby, I find the the purpose of the DRP to be less clear, besides for patently clear aversion to debt that this company’s boards have had for many years (in the it has never borrowed money from the bank

I agree with you: the claims of the “assisting to improve the shareholder spread and the liquidity of the shares” is tenuous, and confined only to the extent that existing shareholder don’t participate in the DRP (which, given where the share price is trading, they would be nuts not to do)

As for “providing substantial value” to shareholders, all the exercise is doing is to expunge excess franking credits and to lower the share price on an ex-dividend basis and, in doing so, reduce the capital gains tax liability.

As for where the stock trades once it goes ex-dividend, I suspect that – given the DRP arbitrage opportunity - the stock will fall by somewhat more than the $1.00 DPS. I wouldn’t be surprised if it breached $6.00.

Still, that wouldn’t be a bad outcome given, as you say, we started with a $6.50 share.


Another thing I’m trying to understand about the DRP is by how much Shares on Issue (SoI) will increase by.

By my reckoning, the maths works something like this:

Current SoI = 8.742 million
Value of Special Dividend = $8.742m
No of DRP shares issued = $8.742m/$5.50 per share = 1.589 million DRP shares

Expansion of Issued Share Base in percentage terms = 1.589 divided by 8,742 = 18.1%


As for the full-year, guidance, when this update was provided some weeks back I found its wording of “second half trading will be at levels approximately 20% greater than those of the first half” to be somewhat open to interpretation. Does that mean that Revenue will be 20% higher? Or Operating Profit? Or Net Profit.


If anyone cares to expand and/or correct my rambling thoughts, that would be greatly appreciated.


As I have said before, this company defies many of my long-held beliefs as to what sort of business creates lone-term wealth for its shareholders. Given the nature of its business, and the type of assets it manages, this company shouldn’t be such a prolific creator of shareholder value.

Yet, curiously enough, over quite sustained periods of time, it has done so.

Even before the upcoming special dividend, I am free-carried about two times on my initial investment in the stock (I averaged $1.60 entry price over in 2003 and 2004, and since then I’ve received $3.13 in dividends.)

At the start of the 10-year journey, I probably thought the stock was somewhat undervalued, but I would never have dreamt of the outcome that eventuated.


Adam-The-Satisfied