K&S Corporation (ASX: KSC) has broken out of a 6-year resistance level

Who is K&S Corporation? 

K&S Corporation (ASX: KSC) is a small logistics company operating in Australia and New Zealand. The company offers transportation, warehousing and fuel distribution services through roads, rail tracks and coastal sea lines.  

 

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Experiencing a nice post-COVID recovery 

COVID-related movement restrictions as well as high driver absenteeism during the pandemic hit KSC’s operations hard. But the company remained profitable throughout the period as it received job keeper subsidies from both the Australian and New Zealand governments.  

As the movement restrictions eased and driver absenteeism subdued, K&S’ profitability recovered and the company’s FY22 results showed earnings substantially higher than pre-COVID levels. Two weeks after the announcement of the results, K&S’ share price broke out of its 6-year cap at around $1.85. We think this is evidence of the market’s agreement with the company’s performance and improved prospects. 

 

 

❶ FY22 results show substantial improvement in earnings. (FY22 Preliminary final report) 

 

Improved profit margins 

K&S came out of the COVID period leaner after it exited underperforming businesses and contracts and implemented cost reduction strategies. The company renegotiated supplier contracts and replaced some of its older, high-cost fleet with a modern fleet and rationalised its operating fleet according to driver availability. 

The company’s focus on increasing earnings rather than growing unprofitable revenue resulted in lower revenues, but higher profits in FY22 compared to pre-pandemic levels.  

 

Strong financials 

K&S made $17.4m in net earnings in FY22 without receiving job keeper payments from the government, which was a substantial improvement over the prior years’ earnings. The company made $18.1m in profits in FY21 after receiving $23.2m in wage subsidies and made $11.2m in FY20, including wage subsidies of $13.7m. It made $2.3m in FY19. 

K&S’ stock is now trading at a trailing EV/EBITDA of 4.6x and price-to-tangible BV of 0.9x. The company is paying 9.5 cents from its FY22 earnings per share of 13.4 cents, which gives it an attractive dividend yield of 4.8% and a P/E multiple of 14.3x at the current share price of $1.97. 

 

How to play K&S’s stock? 

K&S’ share price has broken through a 6-year resistance level and is now making a pull-back to that broken resistance. The breakout has characteristics of strong conviction on the side of buyers (two consecutive big white candles following the breakout on the weekly chart) and shows bullish sentiment on the stock. As such, we think prices close to the broken resistance level at $1.85 are attractive with a price target of $2.50 to be reached in the next few months. 

 

Stop loss at $1.85 

From a technical analysis perspective, the broken resistance at $1.85 should now act as a support level. A break back below the broken resistance level would show that bulls are no longer in control and this substantially reduces the chances of further share price advances in the short term. 

 

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Frequently Asked Questions about K&S Corporation

• Is K&S an Australian company? 

  Yes, K&S is based in Truganina, VIC.  

• Does K&S pay a dividend? 

  Yes, the company is paying a final dividend of 5 cents for FY22 with an ex-date of 18 October 2022. 

• Is K&S a BUY right now? 

  We think prices near $1.90 are attractive with a stop loss at $1.85.