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Making All The Right Konektions
BY JAMES DUNN - 17/06/2016 | VIEW MORE ARTICLES BY JAMES DUNN

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KKT - KONEKT LIMITED


Konekt listed in November 2003 through the shell of the old Startrack Communications, after raising $7.5 million at 1.5 cents a share. It has been a very strong performer on the stock exchange in recent years, delivering shareholders a return of 50 per cent a year over the past five years.


The little-known Konekt Limited (KKT) is only small – at its share price of 38 cents, it is capitalised at just $28 million – but it is a major player in its niche, which is workplace health solutions. The Sydney-based Konekt is Australia’s largest private sector work rehabilitation and return-to-work services provider, holding about 10 per cent share of a highly fragmented market.

Konekt seems to be on a mission to make that market less fragmented, having mounted at least ten acquisitions in the last two years, building-out its offering in workplace and injury management services. Konekt deals with the largest government departments, the nation’s seven major insurers and some of the country’s largest public and private businesses and organisations. It counts among its client base the Australian Defence Force (ADF), Medibank Private, Commonwealth Bank, National Australia Bank, CGU, QBE Insurance and Allianz.

Konekt’s business is focused mainly on three service areas:

  • Return to Work Injury Management Services: Konekt provides return to work (RTW) injury management and return to work rehabilitation services for employers to best help their employees who have been injured or fallen ill make an early and safe return to work, or secure new employment. These services include specialist assessments, checks, tests, reports, programs and consultancy.
  • Injury Prevention Services: this part of the business focuses on minimising workplace injuries. Services include pre-employment assessments, onsite worker health checks, ergonomic assessments and training, manual handling training and seminars.
  • Workplace Health and Safety Consulting Services: Konekt’s consulting arm seeks to help organisations to minimise the impact of workplace injury and related workplace costs, through developing appropriate workplace health and safety management systems and procedures, and health and safety training, resulting in reduced workers' compensation premiums.

More recently, Konekt has begun to leverage the strength of its extensive database of return-to-work case files – called Konektiva – to produce data analysis to help OH&S professionals, workers compensation specialists, regulators and employers to improve their decision-making. Konekt has found that workplace-related injuries cost the Australian economy almost $61 billion a year.

In 2013 the company launched the Konekt Market Report, looking at trends in the Australian workers’ compensation market by analysing data across more than 95,000 Konekt cases. The 2016 report is based on seven years of rehabilitation outcomes, and highlights the increasing impact of mental health conditions in the workplace: Konekt reckons work-related psychological injuries and mental health conditions add more than $14 billion a year to the workplace-related injury bill.

From its data focus Konekt has developed a product called Konekt JobScreen, which provides customers with a holistic view of their incoming workforces’ health and risk profile, to identify key risks for a business. For example, it can identify the percentage of candidates that are obese, candidates that have elevated blood pressure, candidates who would benefit from improving cardiovascular fitness for general health, and candidates that have back/neck/lumbar spine pain. Company-specific data can be readily compared against Konekt’s overall data, which the company says leads to better-informed decisions.

The point of everything Konekt does is that early referrals result in more successful return-to-work outcomes and also result in a decreased period of rehabilitation services. Research indicates that the less time people spend in the rehabilitation system, the better their health and return to work outcomes. It is a great example of a business that performs service to its customers that saves them money and makes money for itself, while benefiting society.

But Konekt is not a charity. Shareholders demand profitability, and the company is delivering. In FY15, revenue from operations increased by 7 per cent to $35.1 million, while net profit surged by 45% to $1.5 million. Importantly, revenue was evenly spread between government, corporate and insurance company clients.

Then, in the half-year to December 2015, Konekt boosted revenue by 14 per cent, to $19.6 million, and almost doubled its net profit to $1.1 million, equating to 1.5 cents a share. The company says it expects revenue of $22 million–$24 million in the current half, which would bring full-year FY16 revenue to about $41.6 million–$43.6 million, compared to $35.1 million in FY15. Clearly the company will generate a profit lift from this, and it has also stated that its FY16 acquisitions “will contribute to earnings,” but it has not given net profit or earnings per share (EPS) guidance, other than to say that FY16 EPS will be cut by 0.2 cents a share through accounting standard requirements.

Konekt has an on-market share buyback in place that will buy back up to 14.5 million shares (of 73 million shares on issue) and this will also boost EPS. The company has a strong balance sheet and no debt, with net cash on the balance sheet of $2 million at December 2015. The buyback is utilising the last of the company’s tax losses, and Konekt should be generating franking credits as at the FY16 result, bringing a dividend at least into sight.

Konekt listed in November 2003 through the shell of the old Startrack Communications, after raising $7.5 million at 1.5 cents a share. It has been a very strong performer on the stock exchange in recent years, delivering shareholders a return of 50 per cent a year over the past five years. In the last 12 months the stock is up 90 per cent, from 20.5 cents a year ago to 38 cents. Having grown from a nano-cap stock to a micro-cap, Konekt is likely to start showing up on the radar screens of a lot more analysts and fund managers than has been the case. Chief executive officer Damian Banks and his management team have been producing the hoods for quite some time, and this is a company – and stock – on the rise.
 



View More Articles By James Dunn

James was founding editor of Shares magazine, and oversaw one of the most successful magazine launches in Australia. He has also written for BRW, Personal Investor, The Age and Management Today, and was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au



 

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