Shares in Value Logo
Product Review Img Vertical

Date : 19/01/2023

Kelsian Group

ASX :

KLS

Market Cap : $1.27 Billion

Dividend Per Share : $0.165

Dividend Yield : 2.83 %

Buy

52 Week Range : $4.32 - $8.07

Share Price : $5.65

A high-quality, defensive business that has and advantage during high inflation periods. A 'Buy' from us.

Company Analysis

Kelsian Group provides land and marine transport services in Australia, the UK and Singapore. It operates through three segments of Australian Bus, International Bus and Marine & tourism. The Australian Bus segment operates metropolitan public bus services on behalf of state governments in Australia’s capital cities, and it’s by far the company’s largest segment by revenue.

The international Bus segment operates metropolitan public bus services on behalf of governments in London and Singapore. The Marine and Tourism segment provides ferry services and package holidays.

COVID-19 is in Kelsian’s rearview mirror

Kelsian’s earnings and thereby its share price took a hit in FY22 by COVID-related travel restrictions, labour shortages and increased costs. Many people avoided public transport to reduce exposure to the virus, and the rolling border closures impacted the company’s tourism business.

In addition, the international border closures led to labour shortages across the developed countries where Kelsian operates. And the inflationary environment, especially in the second half of FY22, increased Kelsian’s cost of operations by rising fuel prices and wage pressures. But now, all those pressures on Kelsian’s business are easing.

The pent-up demand for travel should boost Kelsian’s tourism services business in FY23. And more importantly, with the vaccination rollouts in the countries where Kelsian operates turned out to be widely effective, people no longer avoid public transport.

With the reopening of international borders in Australia, the UK and Singapore, overseas workers are finding their way back to those countries, and labour shortages are easing.

A defensive and high-quality business

Economists use the term “stagflation” to describe the current state of the global economy. Stagflation exists when we have inflation and economic contraction at the same time. Simply put, people are making less money while their cost of living is increasing.

Costs of receiving tickets, increased road tax and increased insurance premiums and repair costs while facing increasing uncertainty regarding future income, are all good reasons for people to consider public transport options before pulling out their private cars.

Kelsian’s FY22 results showed a gross profit margin of 26.9%, a 0.1% increase from the company’s FY21 gross profit margin of 26.8%. This is particularly pleasing to see the company’s gross profit margin improved in a year of increased costs.

The company’s CPI-indexed government contracts were the most important factor in passing on increased costs more successfully than many other companies. More than 80% of Kelsian’s contracts include mechanisms to compensate for fuel, wages and other inflationary pressures. We think this is a huge advantage to kelsians’ business model, especially in the current inflationary environment.

Kelsian’s stock is attractively valued

KLS paid fully franked dividends of 16.5 cents from the earnings per share of 24.1 cents made in FY22, representing a payout ratio of 68%.

Kelsian’s stock is covered by nine analysts, and based on their consensus estimate, Kelsian is expected to make earnings per share of 33 cents in FY23, giving it a forward P/E multiple of 18.0x. Assuming a similar payout ratio of 68% for FY23, expected dividends for FY23 would be 22.6 cents, giving KLS an expected dividend yield of 3.8% at the current share price of $5.97. Not too bad, in our opinion, given that analysts expect the company’s earnings to grow in the next five years by on average more than 10% annually.

How to play Kelsian’s stock?

The uptrend in kelsian’s share price (the orange line on the chart) is showing signs of conviction on the side of bulls as it has increasing momentum and has made multiple higher highs within a period of three months.

As inflationary pressures continue to ease and more people return to using public transport and Kelsian’s tourism services, we think the company’s financial performance and share price are set to improve for the foreseeable future. As such, we think prices near the 23% Fibonacci level of $5.80 are attractive, with target prices of $6.75, $7.50, and $8.20 at the corresponding Fibonacci retracement levels of 38%, 50% and 61.8%, respectively, to be reached in the next several months.

We think in the long-term, Kelsian’s share price can see its all-time high of $10.60 once again as the business continues to grow through earnings accretive acquisitions and organically.

Stop loss of $5.30

We recommend using the support level of $5.30 (the green line on the chart) as a stop loss level. A confirmed break below this support level would also suggest that the short-term uptrend (the orange trendline) is broken, and it significantly reduces the chances of further share price advances in the short term.

 

Kelsian Group, Weekly Chart in Semi-log Scale (Source: Metastcok)

 

Scroll to Top

Login

By submitting this form, I agree to the TERMS AND CONDITIONS and PRIVATE POLICY