If you are a daily trader in the KSE, a long term investor or just an average Kuwaiti who spends some time socializing in the “diwaniya”, you have probably came across or heard about KGL’s (Kuwait and Gulf Link Transportation Company) recent rally.
As per Zawya’s description:
KGL invests in transportation companies; involved in warehousing and distribution; freight forwarding; cargo handling; public transportation; land transportation of cargo; seaport operations and management; charter airline for passengers and cargo; chartered maritime transportation services for passengers and cargo; car rental; distribution of trucks; automotive repair and maintenance services; travel agents; insurance services; landlords and developers; software and network solutions.
After looking at the company’s financials, I didn’t find anything exciting that might lead to the surge of the stock; in fact I found the opposite. Historically the company operated at low margins and made huge losses in their operating income for FY08 and 9M09, however their income from associates decreased the amount of loss they booked. My main concern with KGL’s financials is their debt. Their D/E ratio is 1.7 and their interest coverage ratio is 0.8, which means that their financing cost are higher than their operating income, hence the need of liquidating some assets to service the debt might be needed.
But after Agility’s issue with the US Government in mid November (click for details) KGL has been traded heavily. Since Agility’s case is not over yet and there is still no news regarding KGL, people are speculating that all Agility’s contracts will be awarded to KGL. Looking at the graph below, it shows a rebased graph of both Agility and KGL since November, it seems like they are mirror images, whenever Agility decreases in price KGL increase.
The market is always right; do you think speculation was the only reason that made agility’s share lose 60% and made KGL gain 130% or is the market telling us something?
Agility:
KGL:
(No Ratings Yet)
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Probably insider trading
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Sal Reply:
February 21st, 2010 at 1:00 pm
There is no other explanation. KGL and KGL Logistics are limit up today!
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There is an explanation, but one which you and your readers here will find hard to digest. As a matter of fact, more than 95% of investors dont know this.
The reasons markets/companies move up or down is NOT due to fundamentals or technicals even, as most believe. It is due to the liquidation/accumulation/rallying phases which takes place by the big funds..
Looking at this graph above, and i dont know anything about Kuwait, or these companies specifically, it looks like the rallying stage is almost done. Expect prices now to settle down somewhere lower within 10-20% for a month or two, where the funds will distribute slowly.. Expect also to hear nothing but good news.
You see, distribution mostly happens on the way down, not at the peaks, as most ppl think..
The more it falls, the more naive investors think they’re getting a good deal…and the more they buy.
If you buy a serious chunk at 10, and rally it to 100 very quickly, you wouldnt mind selling at 70-90, would you?)
If i was holding shares in KGL, id be out now! I wouldnt touch this company again before at least a 50% decline from where it is right now..
Just some thoughts..
Conspiracy theory maybe to some, but thats how markets work unfortunately..
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