Korvest well placed to see out tougher conditions

The Pure Microcap fund recently took a position in small Adelaide based manufacturer Korvest. Korvest’s dominant business is Ezy Strut, a provider of cable and pipe supports used in large scale construction projects such as tunnels, manufacturing plants and resources projects. The business has a long track record of solid margins and returns on capital however has experienced a tougher trading environment of late. We believe current earnings are not reflective of through the cycle profitability for Korvest and accordingly on a medium term view, the valuation looks attractive. The company has consistently generated good cash flow while maintaining a high quality balance sheet, meaning the company is well placed to see out the tougher near term conditions. At current levels Korvest is trading well below tangible asset backing and will continue to generate good cash flow. Further, capital requirements are light which means Korvest can continue to pass through earnings to shareholders in the form of fully franked dividends.