With the share prices of many of my investments (including those I recently blogged about) having risen by quite a bit, I decided to nibble at Kingsmen Creatives Ltd, paying 59.5c a share, as its share price remained in the doldrums.
The weakness in Kingsmen's share price today reflects Mr. Market's pessimism. Despite being a leader in the industry, Kingsmen was not insulated from a marked slowing down in the high end retail industry which led to a much lower demand for their services.
However, here are a couple of things I do know which give me some comfort:
1. Company did share buy back in 2015 and 2016, paying 62c to 65c a share. Could they have thought that it was undervalued back then?
2. Dividend per share (DPS) of 3c which means a dividend yield of 5% for me. Although if earnings should weaken, things could change, a net cash position suggests that a DPS of 3c could be maintained.
Some readers might point out that with NAV per share at 54c, I am paying a premium of 11%.
It might be surprising to hear me say this but it doesn't matter. It would be nice to buy lower than NAV but not a must. Why?
Kingsmen is a services company and not a REIT or property developer which are asset heavy. Apart from cash and its equivalents, Kingsmen's value largely lies in the intangible (i.e. services) they provide.
The softer economy will challenge Kingsmen to bring home the bacon. However, a good track record gives me some confidence that the business would do reasonably well and that, over time, I would have another good income generator in my portfolio.
Finally, I should say that although Mr. Market is pessimistic, I am not being optimistic nor contrarian. I am staying pragmatic and, so, mine is a relatively small investment for now.
Wah..i just bought some at 0.595 today too
ReplyDeleteHi SGDividends,
ReplyDeleteWhat a coincidence! ;)
Hi AK, welcome onboard Kingsmen. :P
ReplyDeleteThey have generated positive free cash flow since FY2012 and I am sure they will be able to weather the storm with a relatively strong balance sheet. ;)
Hi Kevin,
ReplyDeleteEt tu? ;p
I also think that being in a position of strength during bad times would allow them to emerge even stronger. Now, what remains to be seen is how soft the economy is going to be and for how long. Kingsmen could test the patience of investors. ;)
Hi AK,
ReplyDeleteThe Hour Glass might interest you too. They are also suffering from a marked slow down in the high end retail industry which led to a much lower demand for their timepieces. It is currently trading at close to or at book value and with a strong balance sheet.
By the way, i watched THE FifthPerson's webinar with you making a guest appearance and it was quite hilarious. ;)
In addition, I picked up stair climbing recently after reading your blog post on it and I must say it is really a good low impact cardio workout. I am starting to feel the improvement to my stamina already. Are you still doing stair climbing?
Hi Kevin,
ReplyDeleteI looked at The Hour Glass briefly and I rather like the numbers. The problem is I am not a luxury watch person and I cannot imagine how it can be a good business selling luxury watches but I suppose it is!
That guest appearance? Aiyoh, Rusmin (Victor's other half in the business) told me before "No substance, never mind, AK, you are funny."
I took a break from stair climbing because of CNY. I think I put on a bit of weight from all the snacking too. Cham. Thanks for the reminder. I should climb some stairs again.
"Even though the management is cautiously optimistic about the outlook, Kingsmen Creatives shouldn’t have an issue tackling the tough times ahead because of the net cash position that they have built up through the years. Based on 1Q 2016 results, the company currently has a net cash position of $56.6 million which is about 45% of its total market capitalization of $123.8 million." - Victor Chng, The Fifth Person, in August 2016.
ReplyDeleteKingsmen's share price was 63c back in late July 2016.
Wow, AK, I can't believe bloggers can move markets!
ReplyDeleteHi jojo,
ReplyDeleteI can't believe it either. It is probably a coincidence. -.-"
Hi AK,
ReplyDeleteActually Pico is the market leader, but listed in HK.
Kingsmen is 2nd or 3rd.
Regards.
Hi Matthew,
ReplyDeleteI wasn't sure about their exact position. So, I said Kingsmen is "a" leader and not "the" leader. Thanks for letting me know. I appreciate it. ;)
Declared a final dividend of 1.5c per share.
ReplyDeleteEx-date: 16 May 17.
Pay on: 31 May 17.
http://kingsmen.listedcompany.com/newsroom/20170221_204912_5MZ_0KK2GNFAPLCZ95XX.1.pdf
Looks like assumption of annual DPU of 3 cents is not holding water.
ReplyDeleteOn the hindsight, would you have lower your entry price if you know that the final dividend will be reduced to 1.5c ?
Hi betta man,
ReplyDeleteAssumptions are porous. They are never meant to hold water. ;)
In any case, 1.5c is the final dividend. Add the interim dividend and we should get 2.5c which is still pretty decent.
If the company has good reason to hold back dividends, I am unlikely to disagree. :)
Hi AK,
ReplyDeleteWill you be worried about their low Net Profit percentage?
Comparing to PICO Far East (Gross Margin about 30%, Net Profit Margin 7.34%), vs Kingsmen's (Gross Margin 25.3%, Net Profit Margin 3.57%)?
Hi M4MG,
ReplyDeleteThat is the nature of things when we have to play second fiddle.
There are many other things to consider in an investment and as long as Kingsmen remains profitable, with their strong balance sheet and track record, they should do better in future.
Hi AK, are you still holding on to this Kingsmen. Its price dipped a lot recently.
ReplyDeleteHi Unknown,
ReplyDeleteUnfortunately, it has almost halved from my entry price.
Fortunately, however, it is a very tiny investment in my portfolio.
So, the decline in price isn't rocking my boat.
You might want to read Musichwhiz's blog on this business if you are interested in some in depth analysis.
I do not know if it is still his largest investment though.
See:
Musicwhiz on Kingsmen Creatives.
Hi AK,
ReplyDeleteMy take is that such decline is manageable as long as one remains invested in the market for dividend. I also have stake in Kingsmen and the price decline does not bother me at all as I adopt the diversification approach. This gives me the peace of mind and I can focus on doing the things of my interest.
WTK
Hi WTK,
ReplyDeleteAgain, we are all wired differently.
Some people believe in setting a cut loss which makes sense in some situations.
Also, if we are losing sleep over an investment, we might have sized it inappropriately.
Dear AK,
ReplyDeleteWould you be considering to average down your Kingsmen? Of course low can always go lower!
Regards,
WS
Hi WS,
ReplyDeleteThere are so many smaller businesses that I would like to buy into because I think their stocks are cheap.
If I had more spare cash lying around, I might just add to my investment in Kingsmen and a few other businesses now.
Unfortunately, I don't.
I blogged about how much passive income is enough for me in October last year.
See:
How much passive income is enough for me?
I have more limited resources in retirement.
So, I have to remind myself to go for
1. a higher level of certainty
and
2. a lower level of risk and volatility.
Kingsmen and other smaller businesses might be undervalued but they are probably less resilient compared to some of my largest investments.
See:
Largest investments updated (4Q 2019).
And that is where I will most likely be channeling my limited resources.