ksc valuation?, page-24

Unsure why KSC is drifting southward. It is a lightly traded stock, so small sentiment swings have a relatively large SP impact. When I took a crude stab at a fair-value price of $2.20, I thought of it as the mid-point of a distribution curve somewhat like the "normal distribution curve", but not with its precise mathematical properties, and so in crude terms again, 10% on either side of $2.20 should be seen as highly likely, and 20% too, but less so. The current SP of just below $1.90, although disappointing, is not surprising. $2.20 x .85 = $1.87.

Am I worried? No. For starters, recently a swag of directors subscribed to the DRP at $2.3126. Secondly, there is no macro-economic news from the East Coast that paints a more dire picture than has applied for the last three years, so I doubt if significant negatives can spring from there. If a lower iron ore and other mining-products prices drop lower, then the value of the A$ should drop, which should occasion East Coast business to improve. The March report states "East Coast operations continue to experience the effects of the high A$."

In WA the business has two significant markets - timber in the south, and mining in the north - there could be some weakening there, but then maybe not, and the March presentation of 1H2013 states "Our Western Australian business looks set to experience growth in the second half." In the longer term there is no clear indication that things are going to deteriorate in WA. Producing iron ore mines are going to increase tonnage, and the Royalties-for-Regions program is going to increase civil works in the mining areas, and hence I do not expect the transport business to collapse. There could be margin pressure from mining companies negotiating with more vim than in earlier years.

I have no idea of the situation in NZ, but it is relatively small, so not worth investigating - perhaps KSC should sell that business to get rid of the distraction.

KSC is not followed by brokers, and there are no published Thomson Consensus Estimates for it, so I have to rely on my gut feeling that, on balance, I think the EPS and DPS should at least remain flat, rather than shrink, and on the remain-flat basis the dividend-cum-franking yield is attractive. I hold 30,732 KSC shares, in my SMSF portfolio, and I may now buy more. I'll write a follow-up post if I do.