K1 Ventures announced capital reduction

Perhaps one of the most overlooked dividend stocks by wealth builders in Singapore, K1 Ventures announced capital distribution of 1.5 cents per share in October 2015 to reward shareholders. The objective of the proposed capital reduction is the maximisation of value, through the distribution of surplus cash to shareholders because the company will not be making any new investments and instead will focus on managing current portfolio. This is the second capital reduction for K1 Ventures since Dec 2007 and for each of the past 10 years, the company had announced dividends. 

In announcing the capital distribution, K1 Ventures also released a fantastic 1Q 2016, which saw a net profit of $87 million. Revenue was $89.3 million for the first quarter ended 30 September 2015 compared to $2.9 million in the prior year period driven by an increase in investment income from KUH, attributable to the receipt of a cash distribution of approximately $85.6 million. The balance sheet is also in great shape because net current assets is $144 million and there is no outstanding borrowing. After the disposal of Helm, K1 Ventures had finally become more “asset-lite” and not burden by the heavy borrowings. Cash-flow is also good, with the operating activities at $84 million and cash and equivalents at $135 million.

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I have been tracking K1 Ventures for more than ten years and I must salute the CEO and Chairman, Steven Jay Green for his Midas touch and investment foresight. He was appointed to head the company in 2001, during the 9/11 terrorist attack. At a time when global investment appetite was extremely low, especially in the United States, he actually overhauled K1 Ventures’ investments to focus in the United States market. Some of the notable major investments included Helm, McMoran Exploration, Knowledge Universe Holdings and Guggenheim Capital. These investments had turned out to be gold mines for K1 Ventures and shareholders were rewarded time and again with the generous dividends dished out by the management. Investors who had invested in this stock since 2001 would have got dividends of $0.27 per share!

Besides the above, the company has also undertook to consolidate share of
every five existing issued ordinary shares into one share. The move is aimed at meeting SGX’s new minimum trading price of $0.20 per share. At this moment, the consolidation exercise is still on-going, so it is unclear what will be the share price after the exercise. But I reckon after the capital reduction and share consolidation, the range of the share price should be $0.85 to $0.95. Market sentiments played an important part and given the current market conditions, investors may not price the stock at its market value.

The parent company of K1 Ventures is Keppel Corp but the latter has been very passive in running K1 Ventures, leaving most of the management execution to the CEO Steven. Based on its track records, K1 Ventures is expected to continue to do well and the next trump card should be Guggenheim Capital. The CEO Steven has extensive experience in the United States market, so it would be interesting how he will realize significant profits for K1 Ventures after sinking US$100 million in Guggenheim Capital.

Not vested at the moment in this stock and investors should take note that this counter is currently in share consolidation exercise, so it remains to be seen at what level the share will stabilise.

Magically yours,

SG Wealth Builder

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