7Mes·

Energy always works

After yesterday's fall in the share price, I also opted for an Asian company that I had had on my watchlist for some time. $KEP (+1,06%) has been there since the beginning of the year.

27.02

Korea Electric Power ADR Rep 1/2

Acquistato a 19,62 USD

6 Commenti

Tenbagger-Capital@Tenbagger-Capital

7Mes

The share had also performed well. Are there reasons for the big drop? Do you not share the concerns of @Get_Rich_or_Die_Tryin and @Dividendenopi

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Chris@Multibagger

7Mes

@Tenbagger2024 Which ones do they have? The former has apparently blocked me, for whatever reason.

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Tenbagger-Capital@Tenbagger-Capital

7Mes

@Tenbagger2024 @Get_Rich_or_Die_Tryin are there any differences of opinion with @Multibagger?

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Raketentoni@Raketentoni

6Mes

@Tenbagger2024 I'll post it here for you:

Mr. Prompt is at the start and has had his coffee.

When someone with the name "tenbagger" asks about a state-owned Korean utility, we naturally have to play hardball. Let's give Korea Electric Power Corp (KEPCO, ticker: KEP) a quick and painless run through our established formulas.

1. core quality formula (quality growth)
Sales growth: Currently in the low single-digit range (approx. 0 to 5 % year-on-year). Electricity in South Korea simply does not grow like software.

Operating margin: Currently around 13 to 14% (after years of deep red due to the explosion in global gas and coal prices).

Score: 5 + 14 = 19 points.

Verdict: Right in no man's land (15-25 = solid to weak). Absolutely misses your target of > 25 points for quality growth.

2. cash flow quality formula (the cash machine?)
At first glance, the free cash flow does not look so bad after the recent recovery in energy prices, but: KEPCO is pushing a gigantic mountain of debt of over USD 80 billion in front of it.

The problem with CapEx is that if commodity prices rise again, operating cash flow immediately collapses again because they are not allowed to pass prices on to customers quickly enough. Not a real, reliable cash machine, but a cyclical plaything construct.

3. dividend filter (income core)
Yield: Currently between a meagre 0.3 % and a good 3.1 %, depending on the estimate, but definitely below your hard 3.5 % minimum requirement.

Sustainability: Disaster. When energy prices went through the roof in 2022/2023, the dividend was completely canceled. If a company has to kill the payout immediately in the event of headwinds and you don't think much of "pseudo dividends" through debt, the stock falls mercilessly through the filter.

4. the exclusion rule (the knock-out criterion)
The biggest problem here is not in the balance sheet, but in the parliament in Seoul. KEPCO is over 50 % state-owned. In practice, this means that if inflation rises in South Korea, the state forces KEPCO to sell electricity below the cost of production in order to relieve the burden on citizens. You are not buying a free company here, but the socio-political buffer cushion of the South Korean government. Margins are permanently at risk.

My flippant conclusion for Mr. tenbagger
KEPCO is not a "tenbagger", but rather a "depository excavator", which, in case of doubt, will eat into your returns. You are buying into a highly indebted state-owned company whose profits depend on the goodwill of Korean politicians. No reliable dividend, no strong quality growth and far too much political risk.

We'd rather stick to our Scandinavian or southern European infrastructure bets - at least we know that the regulatory system won't drive us straight into insolvency. We'll leave KEPCO on the Korean peninsula.

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Tenbagger-Capital@Tenbagger-Capital

7Mes

@Dividendenopi Didn't you want to go in there too?

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Dividendenopi👴@Dividendenopi

7Mes

@Tenbagger2024 I had placed a limit order at the time, but as the share was not liquid at all at the time, it was never triggered. Instead, $7012 🥳 came along. It's still a project on the whatch, but it's not a priority at the moment, at least not until a software stock flies out due to SL. Whether it will be then I dare to doubt, I'm still not completely convinced

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