Joyce Corporation (ASX:JYC) is a company we own in the GC1 portfolio which we believe trades at a material discount to its underlying value. On a sum-of-the-parts basis, we estimate JYC is conservatively worth more than $4 per share, compared to its current share price of $3.21.
Based on its current share price, an investor today is effectively paying ~$90 million ($3.21 per share x 28.3m fully diluted shares outstanding) for a company which owns the following assets:
KWB Group (51% owned by JYC)
KWB operates 26 kitchen and wardrobe showrooms under the Kitchen Connection (QLD & NSW) and Wallspan Kitchen & Wardrobes (SA only) brands. KWB is JYC’s crown jewel, and, in our opinion, its stand-alone value underwrites the entire market cap of JYC.
KWB Group is the leader in Australia’s kitchen and wardrobe renovation market. Last financial year, the business delivered revenue of $107m and $19m EBITDA across its 26 showrooms.
Over the coming years, KWB expects to be able to increase its number of showrooms to 50+ in addition to adding new product lines, such as flooring, helping to drive future sales growth. If executed successfully, this should create substantial value for shareholders considering new showrooms have a payback period of several months. On average, it costs less than $300k to fit out a new showroom which, once up and running, generates ~$4m in revenue and ~20% EBITDA margins within the first twelve months of trading.
The other attractive feature of KWB Group’s business model is that its customers pay for their kitchens and wardrobes in advance, before KWB pays its suppliers and employees. This negative working capital essentially means its customers are helping to fund the company’s national store rollout interest-free!
Bedshed (100% owned by JYC)
Bedshed is a national bedding chain spanning across a network of 40 stores. Four of these stores are corporate owned, while the remaining 36 are franchised. Similar to KWB, Bedshed requires minimal capital to grow with the majority of its profit being derived through royalties. Last financial year, Bedshed delivered revenue of ~$21m and $4m EBITDA.
$45 million net cash
JYC has ~$45m of cash on its balance sheet and no debt. This is based on its cash balance at the end of June 2022, the cash proceeds it would have now received from the sale of its property in Queensland in August 2022, and the payment of a $0.10 per share dividend paid in September 2022. A portion of its cash is attributable to the 49% minority owners of KWB, which we estimate to be around ~$18m. Therefore, approximately $27m of JYC’s pro-forma cash balance is attributable to its shareholders ($45m less $18m).
| A$m |
FY22 cash balance | 31.9 |
Sale proceeds - Lytton QLD property (Aug-22) | 16.0 |
Dividend payment (Sep-22) | (2.8) |
Pro-forma cash balance | 45.1 |
Note, this pro-form cash balance is understated as it ignores the ~$1m+ in free cash flow JYC would have earned each month since the start of the new financial year.
In summary, we believe JYC has a strong cash flow generative business model with excellent unit economics, a long reinvestment runway and a strong balance sheet. Best of all, it trades at a low, single-digit multiple of sustainable free cash flow.
