Friday, 24 June 2016

KBSF: Trading at less than its cash value

KBS Fashion Group Limited (KBSF) is a little known, thinly traded stock that has picked up in volume over the past couple of days. Perhaps some news is coming due that caused over a million shares to change hands on Wednesday as the stock price rose from 25 cents to 65 cents. Thursday's trading saw the stock pull back to 41 cents, giving investors another chance to get in on this undervalued gem.

KBSF sells menswear in China. Unlike other Chinese operators which went bust after running away with North American investors' money, KBSF is up to date with audited financials and has funded spending needs from internal operations. The CEO Keyan Yan owns over 50% of the float:

You can see the company's audited 2015 results here. Review the company's balance sheet:

KBSF has $21.2 million in cash and 26.5 million shares outstanding for a cash value per share of 80 cents. That's not all though. Considering its current assets less its current liabilities, it has a significant working capital position of $53.5 million or $2.01 per share. KBSF is a profitable company trading at just one-fifth of its liquid net asset value.

Reviewing the income statement:

After a bad 2014, revenue grew a respectable 4% in 2015. A 5 cent EPS and over $60 million in sales lead to an 8 P/E multiple and a 0.3x revenue multiple, well below other retail clothing peers. That doesn't even consider the company's cash balance, which if included would make ratio analysis impossible since the company has an enterprise value of less than zero. KBSF was trading over $5 in September and it trades at 40 cents now. Prior to that it traded at least at $3 and in 2013 and 2014 it traded over $10.

The stock tanked in January from $2.80 to $0.35 on just 365,000 shares traded for the entire month. Less than the shares exchanged in each of the past two days. With increased buying interest, strong insider holding and fundamentals that support a higher price, you can see how easily KBSF can reverse this trend and trade back over a buck quickly. It almost made it there on Wednesday.

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