SCT - Scott Tech

[Snoopy]

Significant news from SCT today. They are to become suppliers to the mining industry!

26/05/2008
TAKEOVER

REL: 1328 HRS Scott Technology Limited

TAKEOVER: SCT: ACQUISITION OF ROCKLABS

<snip>
The consideration for the purchase will be a mixture of cash and shares in Scott Technology and the transaction will be earnings positive for the Scott Group.
<snip>
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I'm disappointed we do not know how much cash or how many shares are going to be issued to acquire Rocklabs.

More details of the payment to Rocklabs has come out. 3,313,452 shares have been issued at a price of $1.2072. I calculate that 'payment' to be worth.

3,313,452 x $1.2072 = $4m

Some of those shares are temporarily in escrow pending the profit performance of the new acquisition. That is all the information we know for sure. But I'm prepared to guess some more details. Say half of those shares will only be released upon profits reaching a certain level. That means $2m worth of shares now and $2m worth shares later. Possibly the cash part of the deal matched the initial shares issued, let's say $2m. That makes a nice ultimate retirement nest egg for Rocklab's founder, Devereaux. A $2m cash payment is quite manageable by SCT,without moving them too far from their previous 'debt free' position.

Annual earnings of some 0.08 x $2m = $160,000 would be needed to cover a $2m debt and we can assume that Rocklabs as a stand alone business unit is capable of banking that much right now.

A USD:NZD exchange rate of under 70c is encouraging for all exporters. Although I note previous chairman Marsh was complaining bitterly at the end of 2006 when the exchange rate was a low as 64c! Can SCT make any decent money at these exchange rates?

For the newly acquired Rocklabs division the answer is yes. They are doing it now and the weakening of the NZD:AUD exchange rate will do that division no harm. For the appliance production line division productivity improvements have been made. But I predict that division will remain subdued in profitability until housing markets worldwide and the associted boost in new whiteware that goes into a new house look to improve. Nevertheless SCT should be one of the first companies to feel any upturn because of the long lead time between building a production line and the appliances it makes hitting the showroom.

The meat industry joint venture with PPCS has been thrown a curved ball with Craig Norgate entering the industry via the proposed PPCS merger with PGG Wrightson. Ultimately I expect this to work out positively for SCT, and again the recent NZD:AUD exchange rate drop will help. Australia is targeted as a big potential market for meat industry robotics.

All this has given me the confidence to continue accumulating SCT shares, at the right price. My holding is now twice what it was only a year ago! But it is a painfully slow process. My latest order for only a very few thousand shares took a week to fill, and was only finished today!

I was looking for more diversification in my 'nz exporter' portfolio. With the addition of Rocklabs, SCT now provides that diversification across three quite different industry fronts.
The low liquidity means SCT is very hard to accumulate. So waiting for the share price to turn is not really an investment option. The SCT share price was forced down by the effective liquidation of substantial shareholder 'Walker Capital Management'. Management have been in there buying at prices between $1.10 and $1.20. Term debt is zero to minimal, so the company will not be put under pressure in any worsening credit crunch. For me all the ducks are lining up. Don't let anyone say I didn't tell you so.

SNOOPY

discl: hold SCT. Will buy still more SCT if the share price weakens any further!

[Snoopy]

More details of the payment to Rocklabs has come out. 3,313,452 shares have been issued at a price of $1.2072. I calculate that 'payment' to be worth.

3,313,452 x $1.2072 = $4m

Some of those shares are temporarily in escrow pending the profit performance of the new acquisition. That is all the information we know for sure. But I'm prepared to guess some more details. Say half of those shares will only be released upon profits reaching a certain level. That means $2m worth of shares now and $2m worth shares later. Possibly the cash part of the deal matched the initial shares issued, let's say $2m. That makes a nice ultimate retirement nest egg for Rocklab's founder, Devereaux. A $2m cash payment is quite manageable by SCT,without moving them too far from their previous 'debt free' position.

Annual earnings of some 0.08 x $2m = $160,000 would be needed to cover a $2m debt and we can assume that Rocklabs as a stand alone business unit is capable of banking that much right now.

The above relates to the purchase of the 'Rocklabs' business in 2008.

On 2nd October 2013, Rocklabs founder Devereaux, via his firm Inchinnam, has received another big payout from Scott Technology

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On 30th September 2013, Scott Technology Limited purchased the properties at 155-161 Neilson Street, Onehunga Auckland which were leased by the Rocklabs division. The properties were purchased from Inchinnam Limited, the previous owner of the Rocklabs business. The purchase price was $3.2million and fully funded by a bank loan from the ANZ bank. The properties are closely situated to key suppliers and transport links and there is scope for the redevelopment of the properties to improve the overall presentation along with efficiencies within the Rocklabs manufacturing process.

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They almost paid as much for the property as the underlying business back in 2008!

SNOOPY