Back to the old offer price of 56pTo be honest I don't understand why we ever fell from here as the benefits of the core business growing so rapidly far outweighs the Dcb situ worsening . With more stock now out of instis hands and into retail means a low priced bid will not be accepted by holders . This is still my second largest position and I'm still as bullish as ever on Kino prospects . |
Another bid coming? |
Nice rise... |
Could have waited a couple of days for my dividends from elsewhere to arrive!! |
I think Canaccord are stating that the DCB costs have not increased since the last announcement,which is encouraging.
The bond for the final project was 0.9m{already accounted for} which would indicate a total value of around 9m.
At the last presentation Kinovo stated that this final project was just a piece of land at the moment,so if it does go ahead,then it would be a different situation than the previous projects which were started by others,badly managed,and leaving the parent co to pick up the pieces after the collapse/administration.
As dyor2 has stated,there should be stage payments from the client to fund this final project,so who knows,it might even make a profit! |
For me we have a management team doing a good job of an incredibly difficult situation. As a result once clear I would expect business performance to be extremely positive and am more than happy to hold or even add at low share price levels |
As I understand it the final project has not yet started, so there will be few costs paid so far (lawyers !). They seem to have indicated they would like to negotiate it away (discount for cash sir...) as, their forte does not seem to be constructing whole buildings (see DCB) and is far more problematic. The final project is far larger than the other DCB projects, so is the 9m for that project ?. And the bond is 10% of that. |
Below is from the 8th March update & where the £8.6m is from which reads to me as being the cost to Kino. It is not all future cost - see start of the second para where it says significant majority already paid.
"Consequently, with most of the outstanding projects now completed, the Board has assessed that the pre-tax net cost to complete all the DCB projects has now risen by a total of £2.9 million from the £5.72 million highlighted at the Interim Results issued 28 November 2023. This includes a bond with a value of £0.9 million, on which Kinovo has now received a formal demand, in relation to the final project.
A significant majority of these net costs have already been paid, with the remainder expected to be funded from the strong cash generation from the underlying operations and existing finance facilities to manage the cashflow dynamics." |
dyor what's your view, Canaccord seem to think c.£9m cash costs to KINO for final contract? Vs you saying client would be paying most of this if I read you correctly?
Both can't be correct?
DYOR and thanks for views. |
 Quite an interesting share, that I covered on -9/2/2024 - RED at 55p - in line TU, but big legacy issues. Not cheap enough.8/3/2024 - RED at 39p - core business trading in line, but legacy problems worsen again. Weak bal sht, so risk of dilution. Possible recovery trade maybe?The core business actually looks quite good, and is profitable, but there are some major legacy issues relating to its accident-prone former subsidiary in building works, which requires expensive rectification work. The risk was that the bad legacy business liabilities could pull downSome work has slipped into FY 3/2025 due to client delays, but it says this was previously disclosed.Legacy problems update - relating to DCB. 7 out of 9 sites have now been rectified. The 8th site is due to be completed in July 2024. Leaving 1 remaining problem site due to complete in 2026, so ongoing risk there for a couple more years, isn't ideal. Says the liabilities are as disclosed on 8/3/2024, so it sounds as if these big problems are now largely resolved, we hope. Although Canaccord says the remaining costs are a hefty £8.6m.Broker update - another note from Canaccord, they're really being tremendously helpful today! It leaves forecasts unchanged, but at £0.5m below the company's EBITDA guidance, so these figures are now understating reality, at £5.8m adj PBT, and 6.9p EPS.Paul's opinion - this type of business would usually attract a fairly low PER of maybe 10-12x. On 6.9p EPS that gives me a target share price of 69-83p, usefully above the 49p share price after today's 20% surge. However, we need to deduct the cash costs of the £8.6m remediation costs on legacy mistakes, which I make 13.7p/share. That narrows the gap, to a target share price of 55-69p. That's not enough upside to motivate me to want to buy at today's 49p. Particularly when there are still risks here. Looking at the last balance sheet, I think the finances here are stretched, so it could do with an equity raise to repair the negative NTAV £(3.4)m balance sheet.Given that trading is a little ahead, and the legacy problems are gradually being resolved, I think it might be safe to move from red to AMBER/RED. Good luck to holders, but personally I don't see enough upside reward to get me interested in buying a fairly ordinary business, with legacy stuff still hanging around, when there are cleaner, better financed shares around on more attractive valuations.I've just remembered that the major shareholder (just under 30%) tried to take it over at 56p in Aug 2023, but that fell through the continuing, quite good business, so I flagged it as red previously due to the high risk.Today's news is encouraging, although I don't think it justifies a 20% rise in share price just for beating EBITDA exps by £0.5m |
Net current liabs at Sept were c.£5m, they have generated c.£4m since then, with a card facility of c.£6m set to reduce May 24, but with an on demand O/D facility £2.5m....surely with the cash generation and prudent management of creditors, especially Sept showing probably more legacy DCB ones that will reduce, then should be no need for any fund raise.
Why not arrange an RCF or term loan on c.£7m++ and growing EBITDA?
I agree, Canaccord are talking up the wrong tree.....DYOR |
Canaccord are wrong if they say the remaining costs to complete the DCB contracts are £8.6m. They're probably referring to the works cost element of completing the remaining £9m DCB contract - but this ignores the fact that if this contract is indeed undertaken and completed (as opposed to being cancelled by negotiation), there will be regular stage payments from the client to fund the cost of works, as on all construction projects. Also, there will be 5% retention payments due to Kino soon on the contracts which have reached practical completion. Kino's balance sheet and cash generation is fine, and IMV there is no prospect at all of an equity raise. |
Can't see an equity raise . We have little debt .We had 11m pds of debt and never raised a penny . Odd article |
Canaccord says the remaining costs are a hefty £8.6m. |
Kinovo (LON:KINO) - up 20% to 49p (£31m) - Trading Update (ahead exps) - Paul - AMBER/REDProfit is £0.5m ahead of expectations for FY 3/2024. Legacy problems are gradually being resolved, and haven't got any worse this time. Balance sheet is weak, and creditors look stretched, so I think it needs an equity raise, and won't be able to pay meaningful divis for a while. Not enough upside to compensate me for taking the risk. Although I've moved it up from red to AMBER/RED, to reflect that things are improving |
 This is obviously an encouraging update. The remaining uncertainty is over the final DCB contract, which does seem to be a pretty sizeable contract - probably face value of the order of £9m, based on the fact that the performance bond (called earlier this year) was £900,000 (such bonds are normally 10% of the contract value). Kino will have already provided for this £900,000 plus any additional estimated costs to complete the project within the total DCB provision they’ve already made. Could there be a further cost to finally settle this? Hopefully not (Kino must be well aware of the status of negotiations and their internal costs estimates to complete the contract, and will have already provided accordingly). But until this is finally settled the market will probably not value the core business properly. IMV it would be worth Kino paying a bit more to finally exit it (the cost is easily fundable from the cash flow of the core business), but we’ll see.
Obviously the current share price, even after today’s rise, substantially undervalues the core business. At 50p the market cap is £31m. So a conservative forecast of £7.5m EBITDA for the current year puts it on 4.1X EBITDA. The biz is highly cash generative (over 90% of EBITDA is FCF), so it’s on a Free Cash Flow yield of over 20%. It looks like a sitting duck for Private Equity bidders, who IMV could comfortable pay over 80p and still make out like bandits.
A bid still looks like the most likely outcome here - Tim Scott has 30% and if he’s not going to bid again himself then his obvious exit route is to another bidder. But even in the absence of a bid, a “clean” Kinovo with all the DCB costs behind it, would have plenty of ways of enhancing shareholder value - annual Free Cash Flow of over 20% of the market cap gives lots of scope for shares buy backs or dividend. Today’s statement alludes to that: “with the residual legacy issues of DCB closer to being completed, we remain focussed on capitalising on further growth opportunities and maximising shareholder value creation”
It feels like the share price will be held back until the market has certainty over the status of the final DCB contract, but so be it - it’s worth waiting because the upside here still looks very substantial. Once we get that certainty, even if it involves Kino paying a bit more to get it, I’d guess the share price will jump sharply. So I’m happy to hold my 2% and wait. |
IMO looks like it is solely that one contract to 26 that is now "risk" rest should be known. Hopefully they have plenty of wriggle room in their cost estimate and market can work out "worst case" scenario and price KINO accordingly....as hopefully we can when more information is out! DYOR |
Definitely. Market seems to have a pessimistic view of the DCB situation and seems to be reassured there has been no increase in the expected costs and timescales to finish the final contracts. |
If not someone will buy it and the UK mkts lose another company on the cheap |
Should head back over 60p now |
Neither was market IMO, hence the sharp reversal....should be well over 60p again IMO/DYOR.... |
Blimey wasn't expecting that |
....was 65p before the increased DCB cost RNS....hopefully this RNS should allay many of the fears...let's see...DYOR |
Lovely update, great EBITDA figure, bodes well for smashing £7m next year IMO/DYOR
In which case EV/EBITDA ratio looks "off" barring catastrophe on final DCB contract.....
Let's hope Mr Market like the update DYOR |
Someone is dealing badly ! |
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