In today’s spotlight is an old favourite, Kina Securities, otherwise known as KSL. This stock has re-emerged on the buy list recently after going through a 3-point turn across the buy line.
KSL is not new to the market, but it’s worth revisiting. For those not familiar, Kina Securities is a local bank based in Papua New Guinea (PNG). Distinguished from being merely a branch of an Australian bank, KSL is a significant player in the PNG banking scene with 21 branch locations, with its operations expanding into the Pacific.
Apart from offering full banking services, including investments, wealth management, and business banking, KSL excels in fund administration. It manages the platforms that many of the major super funds in PNG use. Interestingly, KSL appears to have an edge in technology. They even provide services that aren’t available in Australia, such as banking through a WhatsApp group application.
Leveraging their technology, KSL is reaching out to more remote PNG areas, and also extending its footprint into the Pacific. KSL’s focus on electronic banking seems to be paying off, as evidenced by their solid growth.
Based on the last results in February (with a new report due soon), KSL saw a substantial increase in new customers, housing loans, SME growth, and profit. Despite the impressive figures, you may ask why KSL is considered a value stock. We’ll delve into the numbers to understand better.
With an average daily turnover of around 150,000, KSL may suit some investors but could be too small for others. At the time of analysis, the share price was 80 cents, which is less than the consensus target. Furthermore, the stock has a yield of over 11%, significantly higher than Australian bank stocks.
The financial health of KSL is strong and recovering, probably due to the impact of COVID-19 on PNG’s resource economy. The recovery is good news as it often indicates that the company is focusing on what matters – improving cash flow, reducing debt, and keeping costs under control.
The price to earnings (PE) ratio for KSL is a mere 3.7 times, the lowest in the last three years. The PropCaf price to operating cash flow is only 1.5 times, quite low. The share price is below IV1 and IV2, a rare occurrence. These figures indicate that KSL is scoring well on price and value metrics.
However, there are risks associated with investing in KSL. The forecast EPS growth is negative, at -23%. It seems this forecast is related to the PNG government’s introduction of a super profits tax for the banking sector, increasing the corporate tax for banks from 30% to 35%.
Despite the tax hike, there seems to be some optimism. The share price has recently increased, suggesting that the banks might be negotiating with the government over this issue. Even if the tax situation doesn’t change, KSL remains a robust and growing company with plenty of cash flow.
To wrap up, it’s essential to be aware of the risk related to the super profits tax, but KSL remains near the top of our buy list, a testament to its solid growth and attractive valuation. It’s worth keeping an eye on this one, as well as their latest results.
Remember, when investing, it’s crucial to maintain vigilance and be aware of the risks associated with your investment choices. Even with the potential tax hurdle, KSL presents an interesting opportunity for investors looking to add a unique stock to their portfolios.
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