Skellerup (SKL) Fundamentals

[smalltrader]

https://nzx.com/companies/SKL/announcements/286611
More director buying..

[winner69]

https://nzx.com/companies/SKL/announcements/286611
More director buying..

A company (investment fund) he is a shareholder in is buying

Hands off relationship we are told - david just signs the form put innfront of him

[BlackPeter]

Match price this morning $1.37 ... spring is in the air and I see higher highs:), assuming the price holds for the day.

Maybe it is the latest PGW announcement ... if others can still make money in agriculture, why not SKL?
Maybe it is the early recovery of mining stocks (well, not up today, but most are now above MA200)?
Maybe the market likes the outcome of the latest milk powder auction?
Maybe the markets see the building industry moving into the next gear?
Maybe the markets just like director David Mair's enthusiasm and commitment for the stock?
Maybe somebody expects a great annual result (or knows more than we do)?

Anyway - I think SKL is well positioned to benefit from any of these phenomena ...

Discl: holding:

[macduffy]

Yes, could be any of those reasons, Peter.

Or, maybe the market's got so high that investors are now turning their attention to the laggards and also-runs?

I hold a few.

[Biscuit]

Maybe somebody expects a great annual result (or knows more than we do)?
Discl: holding:

Well, not that great. $20.5M. "In line with expectations...." but then "expectations" have been steadily reduced over the last year ($24-26M in October 2015; $23M in February; $20 - 21M in April) So they got the bulls-eye in the end.

[Beagle]

Well Snoopy me ol mate, how's the hound feeling about this result ? I see they are confident about earnings growth this year....Hmmm How many times did they revise the forecast last year ?

Maybe let's back test that and have a look at what they said about earnings growth with last year's result.

"The economic environment is uncertain, however I am confident that our
progress and plans mean we are well placed to deliver a further improvement
in earnings in FY16."

Yet earnings declined this year. I'd suggest their credibility is very much on the line now...if they can't deliver earnings growth in FY17 then they're a no growth stock and deserve a lower PE. (I for one will not be giving them the benefit of the doubt as this hound has little patience for directors that make excuses not results). I suppose its some consolation the size of the dividend feed isn't changing.

[BlackPeter]

Well, not that great. $20.5M. "In line with expectations...." but then "expectations" have been steadily reduced over the last year ($24-26M in October 2015; $23M in February; $20 - 21M in April) So they got the bulls-eye in the end.

I guess we need to put this somewhat into perspective. Given that two of the industries they serve are still scratching along rock bottom (Dairy and Mining), do I think that they did very well in achieving basically the same (respectable) result as last year. Revenue up 4%, and earnings basically unchanged.

https://www.nzx.com/companies/SKL/announcements/287383

Share price is as well looking into the future. Mining seems to take off these days (at least that's what the markets believe) and the noises coming from the recent dairy auctions seem to move as well towards "major". Add to that the benefits of the new factory (which we should see in the next financial year) - and happy days should be ahead.

Discl: not excited, but quite happy holder;

[Balance]

Well, not that great. $20.5M. "In line with expectations...." but then "expectations" have been steadily reduced over the last year ($24-26M in October 2015; $23M in February; $20 - 21M in April) So they got the bulls-eye in the end.

Reinforcing the adage that 'downgrades come in threes'.

[Biscuit]

I think that they did very well in achieving basically the same (respectable) result as last year....

Almost exactly the same as 2012 as well.... However, I agree they have shown resilience when some of their end-users have struggled. I like that they are quite diversified and if all their ducks ever line up in a row, they could do quite well (that would be the time to sell I think). Am also holding.

[macduffy]

Yes, it's hard to shine when your top two markets are struggling as SKL's are. I'd prefer that they acknowledge that fact and accept that they have limited scope to grow profits until conditions improve.

[benjitara]

Yes, it's hard to shine when your top two markets are struggling as SKL's are. I'd prefer that they acknowledge that fact and accept that they have limited scope to grow profits until conditions improve.

I agree to a certain extent although downturns and trends present excellent opportunities for businesses to become efficient operators. I currently hold the stock and will continue to (I haven't looked through the report in detail as of yet) but will look closely at management statements in months to come.

[BlackPeter]

Great to see the new director Alan Isaac buying some SKL shares (20k) as well: https://www.nzx.com/files/attachments/242697.pdf;

I guess - he can't leave all the shares to the other directors :cool: - can he?

Sir Selwyn holds already 15.3m shares, David Mair more than 2.2m shares, Liz Coutts nearly 880k shares, Ian Parton 205k shares and John Strowger (another rather new director) 42k shares!

And hey - they all (but John Strowger) topped as well up during the last 6 months or so. I like boards full of directors who not just give lip service to their company but have lots of skin in the game!

Discl: holding as well ... though can't keep up with most of the board members ;);

[Beagle]

Well, not that great. $20.5M. "In line with expectations...." but then "expectations" have been steadily reduced over the last year ($24-26M in October 2015; $23M in February; $20 - 21M in April) So they got the bulls-eye in the end.

Not to forget that at the time of the FY15 results announcement the directors were confident of profit growth in the year ahead just like they are this year. How much credibility can one attribute to this year's confidence ?, that's the $64,000 question. Directors buying is no guarantee that they know something shareholder's don't.

[Jantar]

Even if FY17 is similar to FY16, i.e no growth, the NPAT and free cash flow will still allow them to maintain the same dividend and still have a bit left over for retained earnings. On that basis I calculate a SP Value of 1.68 With a buy up to 1.45, and hold up to 1.80.

[macduffy]

Directors buying is no guarantee that they know something shareholder's don't.

No, not a guarantee - just as directors selling isn't necessarily a sign of impending doom - but it, the buying, increases the odds that things are improving.

I hold.

[BlackPeter]

Not to forget that at the time of the FY15 results announcement the directors were confident of profit growth in the year ahead just like they are this year. How much credibility can one attribute to this year's confidence ?, that's the $64,000 question. Directors buying is no guarantee that they know something shareholder's don't.

Hi Roger ... "tit for tat" for my AIR remarks ;)? Of course are directors buying no guarantee for SP rising, but they hopefully will always know more about the company than even a good informed share holder - i.e. lower risk to buy if they are confident.

I guess if you want to compare SKL and AIR: SKL does not operate planes (i.e. less likely to crash), but more importantly ... they are just lifting off from rock bottom with 2 major customer groups (dairy and mining) both smelling spring air after a long and hard economical winter.

AIR on the other hand just started on the downward cycle.

Again - there are obviously plenty of other differences but industry and position in the cycle (both are cyclical, though);

A good time to swap my SKL against AIR shares might be when mining and dairy are both booming ... and after AIR reached its cyclical low (obviously - I can't guarantee that these two events will happen concurrently, but you can always live in hope).

[Beagle]

Anything with meaningful exposure to dairy will face similar strong headwinds so this shouldn't be a surprise to anyone. Perhaps a warning for other companies exposed to the severe dairy downturn ?, banks and PGW spring readily to mind.


I think you've summed this company up extremely well mate. I think shareholders have every right to expect better forecasting than they've received and the trend is definitely down so maybe as you suggest the actual result will be below even the most recent disappointing guidance, assuming there isn't yet another downgrade before then, which is by no means a safe assumption. The currency hasn't been helpful either in the last month or two tracking back up towards 70 cents U.S. Headwinds remain for the foreseeable future and with the currency above the 20 year average it doesn't have any appeal to me anymore even at $1.20.


Funny thing is Snoopy me ol mate, whenever I would take my old beagle Kelly to the beach she always seemed to make better progress swimming with the tide than against it. This silly old dog took notes and has recently decided to follow suit :)


Well Snoopy me ol mate, how's the hound feeling about this result ? I see they are confident about earnings growth this year....Hmmm How many times did they revise the forecast last year ?

Maybe let's back test that and have a look at what they said about earnings growth with last year's result.

Yet earnings declined this year. I'd suggest their credibility is very much on the line now...if they can't deliver earnings growth in FY17 then they're a no growth stock and deserve a lower PE. (I for one will not be giving them the benefit of the doubt as this hound has little patience for directors that make excuses not results). I suppose its some consolation the size of the dividend feed isn't changing.


Not to forget that at the time of the FY15 results announcement the directors were confident of profit growth in the year ahead just like they are this year. How much credibility can one attribute to this year's confidence ?, that's the $64,000 question. Directors buying is no guarantee that they know something shareholder's don't.

Not at all BP. I started making some objective observations back in April 2016. The whole market is very fully priced and my 3 cents is this is a classic case in point.

Mining and dairy still scraping along the bottom of the cycle and could be for quite some time. OTOH possibly we've already hit the peak of new competition for AIR ? and with them trading on less than half the forecast PE of this company who's directors guided up at FY15 profit release and then again much later that year and then down 3 times..here's a company that got their guidance so badly wrong compared to AIR's that got it bang on the money first time last year and the year before, that one must truly wonder what credibility to apply to this year's confidence, especially so early in the new financial year, (change their mind many times again this year) ?...tell me that's not at least a possibility mate :p

[BlackPeter]

...
Mining and dairy still scraping along the bottom of the cycle and could be for quite some time.

Sure - everything is possible. However - all major mining stock I am following passed over the last 6 months or so the golden cross ... i.e. market seems to think mining's profitability is increasing. But hey - the market is not always right ... The other thing of course is a significant under-investment into mining (particularly research and preparing new mines) over the last handful of years. Always results in subsequent under-supply and with that increasing prices, but yes, I don't know whether this will be this year, next year or whenever. Obviously - new mines need a lot of new pumps!

Dairy ... well, the latest auctions looked positive, but one or two sun rays don't make a summer. Still - nothing is more effective in resolving an oversupply than low prices, i.e. I am optimistic, but again - an improvement might come through this year (at the moment it looks like that way), but only time will tell. Obviously - the under investment of the last handful of years in dairy farms will mean that farmers will need to replace more milking liners than normal!



...
OTOH possibly we've already hit the peak of new competition for AIR ?

We probably should move this bit onto the AIR thread ... so just short. As indicated, possible is anything, but this does not mean it is likely. Cheap fuel and less maintenance for new planes is nothing specific for AIR.

But just to stick with the SKL comparison ... they do have now a brand new factory in Wigram ... maybe this helps them as well to work more effectively and efficiently than in the past?



... , that one must truly wonder what credibility to apply to this year's confidence, especially so early in the new financial year, (change their mind many times again this year) ?...tell me that's not at least a possibility mate :p

I would be the last to claim that any forecast is 100% certain (but the famous exemption of death and taxes) and this obviously includes all SKL forecasts. However - just wondering, are you saying that AIR never ever got their forecasts wrong in the past :p? Roger ...?

[Beagle]

The current management team have a good record but aviation is a notoriously volatile industry as I am sure you know.

Lets just unpack what was said regarding the forecast and when last year.

20/08/15 Company announces an increased profit of $21.9m and says "I am confident that our progress and plans mean we are well placed to deliver a further improvement in earnings in FY16"

28/10/15 Market Update at Annual Meeting - Skellerup expects strong increase in profit and forecasts $24 - $26M for FY16 based on strong first quarter.

18/02/16 Half year result of a modest $9.6m down from 9.7m in the previous comparable period, (what on earth happened to Q2 financial performance if Q1 was so incredibly robust ?) but still forecasting $23m for the FY16 year, i.e. expecting 2H profit of $13.4m.

29/04/16 Lower commodity prices reduce Skellerup forecast earnings to $20-21m. Really, no kidding ! Commodity prices were low all year, directors would have known that. What changed so dramatically between 18/02/16 and 29/04/16 so as to reduce expectations from a second half profit of $13.4m down to $10.9m ? Commodity prices certainly didn't.

Could it simply be a classic case of company directors needing to learn some basic conservatism with their forecasting ? Whatever happened to the old adage of under promising and over delivering...certainly Sir Selwyn has been around long enough to know about this basic principle of good corporate communication ?

Interesting contrast. When the current directors and senior management of AIR occasionally have issued profit forecasts they have no need to revise them over and over again and have delivered on what they promised. Could this be the reason why some directors win prestigious awards at the Deloitte top 200 business awards and others don't ? :p

The $64,000 question is what credibility to attach to this years confidence of profit growth in the light of what happened last year ? I will leave investors to decide that for themselves but for this hound, I expect better forecasting skills from highly paid directors especially for a relatively stable industrial type company for whom it was well known all year that dairy and mining are scraping along the bottom of the cycle. Fact is at the interim result announcement in late February 2016 the directors were forecasting a 2H profit of $13.4M and delivered only $10.9m, nearly 20% less. Interestingly that $10.9m in 2H compares to $12.2m for 2H last year so Fy16 trading was down over 10% compared to FY15 ? Implications going forward ?

Seeing as their earlier forecasting for profit growth in FY16 was articulated as being based on a strong 2H15 result what does this relatively weak 2H Fy16 performance suggest going forward ? Profit growth confidence misplaced again this year ?

What went so wrong in the second half FY16 compared to the business plan ? Surely this cannot be explained simply by ongoing low commodity prices ?

[BlackPeter]

...

Lets just unpack what was said regarding the forecast and when last year.

20/08/15 Company announces an increased profit of $21.9m and says "I am confident that our progress and plans mean we are well placed to deliver a further improvement in earnings in FY16"

28/10/15 Market Update at Annual Meeting - Skellerup expects strong increase in profit and forecasts $24 - $26M for FY16 based on strong first quarter.

18/02/16 Half year result of a modest $9.6m down from 9.7m in the previous comparable period, (what on earth happened to Q2 financial performance if Q1 was so incredibly robust ?) but still forecasting $23m for the FY16 year, i.e. expecting 2H profit of $13.4m.

29/04/16 Lower commodity prices reduce Skellerup forecast earnings to $20-21m. Really, no kidding ! Commodity prices were low all year, directors would have known that. What changed so dramatically between 18/02/16 and 29/04/16 so as to reduce expectations from a second half profit of $13.4m down to $10.9m ? Commodity prices certainly didn't.

Could it simply be a classic case of company directors needing to learn some basic conservatism with their forecasting ? Whatever happened to the old adage of under promising and over delivering...certainly Sir Selwyn has been around long enough to know about this basic principle of good corporate communication ?

Interesting contrast. When the current directors and senior management of AIR occasionally have issued profit forecasts they have no need to revise them over and over again and have delivered on what they promised. Could this be the reason why some directors win prestigious awards at the Deloitte top 200 business awards and others don't ? :p

The $64,000 question is what credibility to attach to this years confidence of profit growth in the light of what happened last year ? I will leave investors to decide that for themselves but for this hound, I expect better forecasting skills from highly paid directors especially for a relatively stable industrial type company for whom it was well known all year that dairy and mining are scraping along the bottom of the cycle. Fact is at the interim result announcement in late February 2016 the directors were forecasting a 2H profit of $13.4M and delivered only $10.9m, nearly 20% less. Interestingly that $10.9m in 2H compares to $12.2m for 2H last year so Fy16 trading was down over 10% compared to FY15 ? Implications going forward ?


So, yes, they got it wrong this year - nobody contests this. Was it the worst forecast error ever happening? Not sure, maybe you should discuss this with WYN or RAK share holders ;).

Lets see - so you say on a sample basis of one year the AIR board is forecasting much better than the SKL board and therefore you prefer to hold AIR? Fair enough, if this is your strategy, though obviously one data point is not a trend.

Actually - not even sure AIR's prediction was much better (I remember the result fell well short of analyst forecasts, but not sure, whether analyst expectations have been supported by company forecasts), but yes, they obviously had a spectacular result.

However - one of the reasons AIR delivered well is as well one of the reasons SKL fell short ... both of them didn't expect resource prices to stay that long that cheap. For AIR this is good (lower fuel prices), for SKL this is bad (less income for one of their major customer groups).

So maybe the performance of AIR and the underperformance of SKL is at the end not related to the performance of the respective boards at all? AIR was lucky with fuels staying cheap (and yes, I realise that there are other factors as well) and SKL was unlucky for mining to stay unprofitable for the most recent financial year.

This begs the question ... do you believe resources (and fuel) will stay that low? If you think yes, than staying in AIR might not be the worst strategy (though their competitors obviously benefit as well from low fuel, and the largest margin was obviously during the time when fuel prices went down but flights still have been dear). If you believe however that resources will come back in the foreseeable future, than the better choice might well be different.

Your guess on the future development of resource prices might be as good as mine ...



...

Seeing as their earlier forecasting for profit growth in FY16 was articulated as being based on a strong 2H15 result what does this relatively weak 2H Fy16 performance suggest going forward ? Profit growth confidence misplaced again this year ?

What went so wrong in the second half FY16 compared to the business plan ? Surely this cannot be explained simply by ongoing low commodity prices ?

Good question. I assume that they expected an earlier recovery of commodity prices, but who am I to know. The old Latin saying "errare humanum est" might be applicable as well. Anyway - I might ask this question in the upcoming AGM ...

[Beagle]

While you're at it you could ask them what happened to Q2 last year ? For them to say Skellerup expects "Strong increase in profit this year" on 28 October 2015 based on strong first quarter and then report a reduced profit in the first half compared to the year before Q2 financial performance must have been a real shocker !
Then as noted above 2H performance also woefully undershot expectations so in reality it looks like they had a very strong Q1 and then Q2, Q3 and Q4 of FY16 were all poor ! Now in Q1 FY17 and beyond it looks like the currency is about 12% higher and maybe headed even higher and taking into account recent dismal performance exactly what specific factors are directors basing their confidence of profit growth in FY17 on ? Yet another good question for the annual meeting ?

By contrast Air forecasted at the AGM last year $400m plus operating profit before tax for !h FY16, didn't need to revise it and achieved it. At the half year result they forecast $800m plus operating profit before extraordinary items and tax, didn't change the forecast and achieved it with $806m. Not too shabby for such a volatile industry and they were good last year too, so what degree of confidence can investors have that they'll achieve their forecast range this year ?, pretty good chance I reckon.

Keep in mind the old bugbear with exporters BP, Currency. Averaged about 65 cents U.S. for most of last year, now ~ 12% higher, headwind for SKL for FY17 ? What if leading economist Tony Alexander's forecast of high 70's low 80 cents U.S. comes true in 2017, impact on SKL and other exporters ? Anyway good luck with it but know that Selwyn Cushing was buying in volume last year too, didn't translate into any meaningful lead indicator then so why should it now ?

Conclusion - I agree there are some shocking miss's on forecasts with a range of other, shall we say politely "less than blue chip companies" and for that matter some blue chips as well, some worse than SKL but I didn't expect to see SKL to be one of the biggest forecast miss's for FY16, did you ?

[iceman]

Should name this company SKELLAIRUP ;) Some good banter and discussions BP and Roger thanks

[macduffy]

Should name this company SKELLAIRUP ;) Some good banter and discussions BP and Roger thanks

Indeed!

Saves reading that old obsolete AIR thread. Two for the effort of one!

;)

[Scrunch]

So Roger - are you suggesting SKL forecast an extremely wide range (Like AirNZ) so as to hit within that range. The bottom of the Air NZ announcement forecast $400-$600m. The forecast top end is 50% higher than the bottom. Should SKL forecast something similar, say $18m and $27m?.

Looking at the earlier post, with this forecast they wouldn't have needed any revisions.

[Beagle]

So Roger - are you suggesting SKL forecast an extremely wide range (Like AirNZ) so as to hit within that range. The bottom of the Air NZ announcement forecast $400-$600m. The forecast top end is 50% higher than the bottom. Should SKL forecast something similar, say $18m and $27m?.

Looking at the earlier post, with this forecast they wouldn't have needed any revisions.

SKL's forecast of strong profit growth issued in late October well into the year. AIR to the best of my recollection have never issued a forecast this early in the financial year and aviation by its nature far more volatile than what's supposed to be a relatively stable industrial company. I for one am pleased AIR have been so forthcoming with guidance and note by way of comparison that QAN by comparison declined to give a forecast for FY17 other than noting headwinds with competition and yield.

[Beagle]

Just a heads-up folks. SKL is being removed from the NZX50 index during the close of trading match process on Friday 16th Sept. Likely to see significant downward pressure by index tracking funds exiting this stock. I also note that ACC who have a superb track record of investment returns have been reducing their holding lately.

[Snow Leopard]

Just a heads-up folks. SKL is being removed from the NZX50 index during the close of trading match process on Friday 16th Sept. Likely to see significant downward pressure by index tracking funds exiting this stock. I also note that ACC who have a superb track record of investment returns have been reducing their holding lately.

Sounds like an excellent opportunity to buy in or top up, if you think it has merit.

Do Your Own Research As Per Usual

Best Wishes
Paper Tiger

[Beagle]

Couldn't agree more PT. I'd say its a unique / golden opportunity to top up / buy in if you think the companies optimism about its future prospects is soundly based, (I stand by my previous comments in that regard, see previous page). Fact is entry / exit from the NZX50 can have a dramatic impact on a companies share price as we saw with CVT when it was granted entry and bolted up 20%.

On the other hand there might be a golden opportunity for those with a more neutral view "hold approach" to sell now and repurchase as part of the closing match process on Friday.

Opportunity knocks depending on one's viewpoint. DYOR. Disc Not holding or contemplating purchasing on Friday afternoon.

[BlackPeter]

Just a heads-up folks. SKL is being removed from the NZX50 index during the close of trading match process on Friday 16th Sept. Likely to see significant downward pressure by index tracking funds exiting this stock. I also note that ACC who have a superb track record of investment returns have been reducing their holding lately.

Hmm, yes - there was a bit of volume in the close of trading, but it didn't really seemed to have a huge impact on the SP. 1 cent down is not too bad for getting out of the NXZ 50 - isn't it? I guess it just shows that people want to own it, not just because it is in the index:p.

[janner]

In some ways they are a little one dimensional.. Mining.. Dairy.

But in others; worth looking at..


Disc. Hold.

[BlackPeter]

In some ways they are a little one dimensional.. Mining.. Dairy.

But in others; worth looking at..


Disc. Hold.

Hmm - mining and dairy are already two - and don't forget building industry and automotive ... makes in my books already 4 dimensions - scary :scared:

[janner]

Building in NZ is not going to stop until immigration comes to it's senses..

Where are all of these highly qualified Forecourt Engineers going to get their next job as digital takes over. ??

Automotive.. The top end.. Always some one at the top end wanting to boost their ego's....

Mining/Dairy.. Same boat .. Commodities. Commodities will always be needed. That is why they are called commodities..

Buy in the dips.. IMHO..

[Snoopy]

I'd say its a unique / golden opportunity to top up / buy in if you think the company's optimism about its future prospects is soundly based, (I stand by my previous comments in that regard, see previous page). Fact is entry / exit from the NZX50 can have a dramatic impact on a companies share price as we saw with CVT when it was granted entry and bolted up 20%.

On the other hand there might be a golden opportunity for those with a more neutral view "hold approach" to sell now and repurchase as part of the closing match process on Friday.

Opportunity knocks depending on one's viewpoint. DYOR. Disc Not holding or contemplating purchasing on Friday afternoon.

Well I 'DMOR' as Roger advised.

Closing price on 12th September (date of Roger's post) was $1.33 (the indicative sell price).
Closing price on 15th September (date of exit from NZX50) was $1.35 (the indicative repurchase price).

Throw in another couple of percent for buy and sell brokerage and I get a total loss of 4.7cps on this sure fire trade. Which only goes to show that no matter how sensible a trading opprtunity seems, there is no sure thing on the market.

SNOOPY

[RTM]

Well I 'DMOR' as Roger advised.

Closing price on 12th September (date of Roger's post) was $1.33 (the indicative sell price).
Closing price on 15th September (date of exit from NZX50) was $1.35 (the indicative repurchase price).

Throw in another couple of percent for buy and sell brokerage and I get a total loss of 4.7cps on this sure fire trade. Which only goes to show that no matter how sensible a trading opprtunity seems, there is no sure thing on the market.

SNOOPY

It mightn't all happen on day one. Lets keep an eye on it for a couple or three weeks.
Took a few days before AIR wandered its way down to 193....hopefully its new base.

[benjitara]

Just a heads-up folks. SKL is being removed from the NZX50 index during the close of trading match process on Friday 16th Sept. Likely to see significant downward pressure by index tracking funds exiting this stock. I also note that ACC who have a superb track record of investment returns have been reducing their holding lately.

I'd also note that exiting the NZX50 does not effect their underlying business but rather the way in which some may trade their interests in the business.

[cdonald]

sizeable off market trades going thru this morning, presume its nzx50 reshuffling.

[hey_homes]

sizeable off market trades going thru this morning, presume its nzx50 reshuffling.

Noob question: where do you get that sort of trade info?

[BlackPeter]

Noob question: where do you get that sort of trade info?

Just find a broker who provides you with market depth information ... e.g. ANZSecurities (as long as you trade with them at least once every 3 months).

[hey_homes]

Righto, cheers. I trade with ASB Securities less regularly than once every 3 months but that's good to know.

[winner69]

Righto, cheers. I trade with ASB Securities less regularly than once every 3 months but that's good to know.

This gives you trades throughout the day .....for free
http://stocknessmonster.com/

[cdonald]

http://www.stuff.co.nz/business/farming/84488486/fonterra-lifts-farmgate-forecast-by-50c-to-525

Looks like the turnaround is coming with share price showing modest gains this week

[BlackPeter]

... Of course are directors buying no guarantee for SP rising, but they hopefully will always know more about the company than even a good informed share holder - i.e. lower risk to buy if they are confident.

I guess if you want to compare SKL and AIR: SKL does not operate planes (i.e. less likely to crash), but more importantly ... they are just lifting off from rock bottom with 2 major customer groups (dairy and mining) both smelling spring air after a long and hard economical winter.

AIR on the other hand just started on the downward cycle.

Again - there are obviously plenty of other differences but industry and position in the cycle (both are cyclical, though);

A good time to swap my SKL against AIR shares might be when mining and dairy are both booming ... and after AIR reached its cyclical low (obviously - I can't guarantee that these two events will happen concurrently, but you can always live in hope).

So far it looks like SKL performed quite nicely compared to AIR since our discussion end of August ... anybody else noticed this friendly Golden Cross which SKL just passed?

[Snow Leopard]

So, I gets this email that says Wont a 'Annual Report? Tries this link to there or this other link to here.

So, I tries the link to there and I gets a list of reports but the 2016 'Annual Report for this year is a flipping flip book it says. Well, that's not a lot use to me is it? Like I wont to download the thing don't I?

So, I tries the link to here and, blow me, if I don't gets that flipping flip book again. Like if I had wonted that I would have stuck with it the first time right!

So, I thinks this ain't good enough, I wonts to register a complaint, how does I does that?

So, I goes to the front of the website to find the contact us stuff and there is a bit half way down the right hand side that says Latest releases and under that it says Annual Report (flip book or PDF).
Well that looks promising I thinks to myself, I will give it go and see what transpires so to speak.

So, I clicks on it and this box pops up and says do you wont a flip book or a PDF or a Cancel.
So, I goes for the PDF like and then the window goes all back and a little blue line starts wandering across the top of the black from the left to the right and when it hits the right end the Annual Report appears in PDF like from nowhere!
So, I hits the download this to you puter before it goes away again arrowy thing and it says Where you wont it? and I says Put it there with the other ones and it does.

So, thats how you gets what you wants but it is a bit of bother and why they didnt put that in the flipping email in the first place beats me.

Happy Reading
Paper Tiger

[macduffy]

SKL expects "consistent earnings".

http://news.iguana2.com/skellerup/NZX/SKL/291496

[winner69]

SKL expects "consistent earnings".

http://news.iguana2.com/skellerup/NZX/SKL/291496

Last year $20.5m - F17 $20m to $22m

Selwyn says 'up to 7% more than F16' - not incorrect but it could be less than last year

One thing - another consistent year for SKL .....and one of their better ones

[Beagle]

Last Year at this time of year the board predicted a more significant profit increase than 7% by miles and got it horribly wrong as the year unfolded. At the time of the annual result this year they exuded confidence about a profit increase this year "The Board is confident that we will deliver an improvement in earnings in FY17." Now they're forecasting $20 - $22m, obviously the mid point is $21m just a fraction better than last year's disappointing $20.5m.

Extract from last year's annual meeting "28/10/15 Market Update at Annual Meeting - Skellerup expects strong increase in profit and forecasts $24 - $26M for FY16 based on strong first quarter.
At that time they were projecting at the mid point a profit of $25m and only achieved a very disappointing $20.5m.

Since then we have the above expression of strong confidence in August 2016 of profit growth this year but that has now been watered down to more or less steady as she goes.

In my opinion, beware ! This is is definitely not a company that under promises and over delivers.

I remain underwhelmed. Disc: Don't hold.

[traineeinvestor]

Last Year at this time of year the board predicted a more significant profit increase than 7% by miles and got it horribly wrong as the year unfolded. At the time of the annual result this year they exuded confidence about a profit increase this year "The Board is confident that we will deliver an improvement in earnings in FY17." Now they're forecasting $20 - $22m, obviously the mid point is $21m just a fraction better than last year's disappointing $20.5m.

Extract from last year's annual meeting "28/10/15 Market Update at Annual Meeting - Skellerup expects strong increase in profit and forecasts $24 - $26M for FY16 based on strong first quarter.
At that time they were projecting at the mid point a profit of $25m and only achieved a very disappointing $20.5m.

Since then we have the above expression of strong confidence in August 2016 of profit growth this year but that has now been watered down to more or less steady as she goes.

In my opinion, beware ! This is is definitely not a company that under promises and over delivers.

I remain underwhelmed. Disc: Don't hold.

While all this is true, the combination of the stated expectation, the strong balance sheet and the almost-completion of the costs of the new facilities, suggests to this amateur plunger that the dividend should be maintained at least for the near term. Happy to be a holder at these levels.

[mshierlaw]

While all this is true, the combination of the stated expectation, the strong balance sheet and the almost-completion of the costs of the new facilities, suggests to this amateur plunger that the dividend should be maintained at least for the near term. Happy to be a holder at these levels.

Indeed.

My reasons for purchase of this share are still valid.

I would love to see the new factory.

[Snow Leopard]

Shiny new factory obviously worth a few cents on the share price.

Hope that translates to a few extra dollars on the profits.

Best Wishes
Paper Tiger

[cdonald]

http://www.stuff.co.nz/business/farming/dairy/85964873/new-zealands-main-dairy-export-rises-sharply-at-globaldairy-trade-auction

The new plant might have come on just in time, confident farmers with opening wallets.

[BlackPeter]

Sir Selwyn buys another easy 500.000 shares - wish I had that sort of money.

https://www.nzx.com/files/attachments/248748.pdf

Definitely looks like he puts his money where his mouth is ... A total of 15.7 million shares is probably not even for him petty cash ...

[macduffy]

American investment management firm First Pacific Advisors has lodged a Substantial Shareholder's notice, with an interest in a shade over 5% of SKL's shares. A vote of confidence in SKL but nothing more, I hope!

[BlackPeter]

well, looks like you did beat me to it:

US Fund (FPA - First Pacific Advisors : http://www.fpafunds.com/about-us) buying into SKL and issued SSH notice.

https://www.nzx.com/files/attachments/249817.pdf

They do own now nearly 10 m shares (spread about several of their investment funds). Looks like some US investors still see value outside of the US.

Does not look like they are collecting foreign companies ... so I assume its just an investment ...

[Biscuit]

Good to see a woman (Liz Coutts) taking the Chair on the (still overly male-dominated) SKL board. Interim result out 16 Feb. Like the way they present their reports on their website. Too often online reports are irksome to read.

[Fisherking]

Good to see a woman (Liz Coutts) taking the Chair on the (still overly male-dominated) SKL board. Interim result out 16 Feb. Like the way they present their reports on their website. Too often online reports are irksome to read.

Male/ female, who cares. It's about whose best for the job.

[davflaws]

Male/ female, who cares. It's about whose best for the job.
I care. And that is because I agree with you that "it's about whose best for the job." and IMO "best for the job" includes consideration of gender and cultural balance in governance.

[Biscuit]

Male/ female, who cares. It's about whose best for the job.

To get the best you have to be able to select from the best. If the result of your selection is constantly turning up a clearly non-representative sample, then there is some bias somewhere that is excluding potential candidates. That should be understood and addressed, otherwise you cannot hope to get the best.

[winner69]

SKL share price approaching $1.60

hasn't closed at this level since August 2014

The market must have gone nuts

[winner69]

Has there been an upgrade on their 'consistent earnings' guidance of a few months

That said F17 earnings would be about the same (maybe up 7% Selwyn said) as last year

Must be having a record year

[Snow Leopard]

4 cents ahead of analyst consensus now and given that no one is picking great growth in earnings for the next few years you have to be in it for the dividend and dream of a takeover bid.

Best Wishes
Paper Tiger

[kiora]

4 cents ahead of analyst consensus now and given that no one is picking great growth in earnings for the next few years you have to be in it for the dividend and dream of a takeover bid.

Best Wishes
Paper Tiger

By Sir S?Not his style :)

[Snow Leopard]

By Sir S?Not his style :)

It is just a dream.

Best Wishes
Paper Tiger

[kiora]

It is just a dream.

Best Wishes
Paper Tiger

Watch out,Sir S is known for creeping up on targets:)

[BlackPeter]

Sorry, just can't resist when looking at Skellerup's nice and steady uptrend.

Remember the (I think more lighthearted) discussions we had 5 months ago (around August 31/ September 1) on this thread about the relative benefits of SKL and AIR? Just pulled a comparative graph showing both stocks - and hey - SKL is the blue line and AIR the yellow one:

8629

I know - the discussion was 5 months ago (and the graph starts 6 months ago) ... however given the lines meeting at the time we had the discussion - I think it is a valid comparison. As well - both companies paid since the discussion dividends - and while AIR's dividend was XXL vs SKL just L ... the difference does not make good for the lost capital gain.

I can't help to think that both SKL board as well as AIR management knew exactly what they were doing when the SKL board accumulated SKL shares and AIR management sold their shares as soon as they could get their hands on them. Always pays to watch the share transactions of board and management.

Discl: holding SKL and feeling smug ;) ...

[couta1]

There's no way on earth I would hold the same value holding in SKL as I do in Air, the difference being in the confidence I have in the two companies as a long term hold.

[777]

BP does the graph include the 35c AIR dividend?

[BlackPeter]

BP does the graph include the 35c AIR dividend?

Read the post ...

but no, it does not. It does not include the SKL dividend either. However - if people insist ...

If anybody would have invested at September 1, 2016 (day of the discussion) $ 10000, this is what they would have by now:



AIR
SKL


# of shares
4348
7353


dividend per share
35c
5.5c


total dividend
$1,521.80
$404.42


capital worth (26/Jan/17)
$9,522.12
$11,544.21


total value (26/1/17)
$11,043.92
$11,948.62



Easy to see - SKL is still winning hands down

[Beagle]

Early days to be crowing BP and yes your chart gave quite a disingenuous view. Given SKL's truly appalling record at forecasting that we saw last year, suggest we compare notes Sept 1 2017.

What's that old saying that springs to mind...oh yes, "pride cometh before a fall" :p

[BlackPeter]

Early days to be crowing BP and yes your chart gave quite a disingenuous view. Given SKL's truly appalling record at forecasting that we saw last year, suggest we compare notes Sept 1 2017.

What's that old saying that springs to mind...oh yes, "pride cometh before a fall" :p

Ah well, just look at the numbers in the table above - they include the dividend.

I remember as well various times where AIR was well out of their forecasts .. and made quite ridiculous investment decisions. Actually - the only reason AIR is still around is that the taxpayer is typically paying for their mistakes.

In SKL's favour: they do have a board which trusts in the company they run AND they put their money where their mouth is. As well - they clearly lost over time less planes than AIR :p, no reason to be smug about a less accurate forecast ... but sure, lets keep this wee race running - and hey, I don't say that the tables might not turn at some stage, but by than I am likely to have sold out of SKL;);

[Beagle]

Ah well, just look at the numbers in the table above - they include the dividend.

I remember as well various times where AIR was well out of their forecasts .. and made quite ridiculous investment decisions. Actually - the only reason AIR is still around is that the taxpayer is typically paying for their mistakes.

In SKL's favour: they do have a board which trusts in the company they run AND they put their money where their mouth is. As well - they clearly lost over time less planes than AIR :p, no reason to be smug about a less accurate forecast ... but sure, lets keep this wee race running - and hey, I don't say that the tables might not turn at some stage, but by than I am likely to have sold out of SKL;);

Ouch you're a hard man BP...just as well the hound has thick skin and a well groomed coat of well oiled fur...like water off a ducks back :D

[777]

Ah well, just look at the numbers in the table above - they include the dividend.

I remember as well various times where AIR was well out of their forecasts .. and made quite ridiculous investment decisions. Actually - the only reason AIR is still around is that the taxpayer is typically paying for their mistakes.

In SKL's favour: they do have a board which trusts in the company they run AND they put their money where their mouth is. As well - they clearly lost over time less planes than AIR :p, no reason to be smug about a less accurate forecast ... but sure, lets keep this wee race running - and hey, I don't say that the tables might not turn at some stage, but by than I am likely to have sold out of SKL;);


What utter rubbish. The Government effectively bought an airline that was about to collapse and have financially done very well out of it. So where is the taxpayer paying for their mistakes. And what is wrong with Air's board? No better or worse than SKL's.

[couta1]

What utter rubbish. The Government effectively bought an airline that was about to collapse and have financially done very well out of it. So where is the taxpayer paying for their mistakes. And what is wrong with Air's board? No better or worse than SKL's. Exactly,and Air has returned over 3 times more back to the Govt than it cost them to bail it out to date.

[BlackPeter]

What utter rubbish. The Government effectively bought an airline that was about to collapse and have financially done very well out of it. So where is the taxpayer paying for their mistakes. And what is wrong with Air's board? No better or worse than SKL's.

Oh dear ... why don't you just enjoy your holding instead of rubbishing fellow posters ;)?

AIR would not have got the money from the banks - wouldn't they? This means this was a high risk investment which well could have been lost.
Yes, great it worked out for the taxpayer in this case, but this does not change the fact that they would be dead in the water if the tax payer would not have put their money forward.


... And what is wrong with Air's board? No better or worse than SKL's.

You tell me. The difference I highlighted is that the SKL directors have a lot of skin in the game and are accumulating. I didn't mention the AIR board, but AIR management is selling as soon as they can ...

[777]

BT. I wasn't rubbishing "fellow posters", I was saying what was written was rubbish.

And my SKL holding is larger than my AIR holding.

[sb9]

HY results out tomorrow...dipped in my toes on this few days back. Anticipating good result and also commentary from new chairwoman....

[percy]

And the struggle continues.
No surprises there.!!

[Beagle]

And the struggle continues.
No surprises there.!!

Couldn't agree more. In my opinion this is a very average company with very average prospects.

[winner69]

Share price sill 20% higher than a year ago

That's good

[Beagle]

Share price sill 20% higher than a year ago

That's good

With ostensibly no growth that suggests either this company is 20% overpriced or the market as a whole is :eek2: Probably just that Overseas fund manager building up their stake and doing everything they can to extricate funds from the "Trump Zone". I think the free business lesson here for the day from the information release is the reminder if we needed it that the currency is really hurting exporters.

[forest]

And the struggle continues.
No surprises there.!!

Todays 1H report was slightly down on revenue and profits but full year for cast is unchanged.
The company has made very steady profits of around $20mil for the last 6 years, this was through a difficult time were their manufacturing plant in Chch was effected by the earthquake. SKL has recently rebuild there manufacturing plant this is now running to expectation.
All this would have taken a lot of management time.
Chair Liz Coutts said Skellerup’s results and financial position represented a solid performance and robust position and noted the Board and management are focussed on earnings growth.

Any reason why we should doubt Liz Coutts.

Remember SKL has paid about 8% gross dividend the last few years.

[percy]

Current PE is 14.27 .
...........2015.........2016.......2017.........20 18........2019...thank you www.4-traders.com
eps.......11.4...........10.7........9.8.......... .11.6.........12.4.
The struggle continues.
Maybe a realistic PE would be between 7 and 10,taking into consideration their low debt, and high dividend.?
I don't know.

[forest]

percy an faster growth would be nice but consistent dividend of 8% gross and the low debt makes me think that the PE at present is ok.
Four Directors of SKL bought shares in the company during the first halve of the financial year which seem to be positive as well.
However its interesting to hear your take on it.

[percy]

percy an faster growth would be nice but consistent dividend of 8% gross and the low debt makes me think that the PE at present is ok.
Four Directors of SKL bought shares in the company during the first halve of the financial year which seem to be positive as well.
However its interesting to hear your take on it.

And as you know I always take a lot of notice of your well thought out/researched posts.

[Beagle]

Pretty clear to me its a cyclical company, check the SP from 10 years ago. Talk of growth is just that, talk, it isn't happening and hasn't happened. Talk last year was of profit of ~ $25 which proved to be a nothing but some dream they had at one point. Cyclical companies deserve a PE of no more than 10 in my investment playbook. For what its worth, yes I also acknowledge AIR is a cyclical company. The difference is AIR's PE is half what SKL's is.

[forest]

Roger there are many ways one can look at this. Air is likely at a different point in it cycle compared to SKL. But if one takes AIR last nine years of NP the average is about $190mil. Using this 9 year average profit will give you a P/E of about 12.3 doing the same for SKL is about 14.3, AIR still better but not by that much.
You are right that SKL for cast have been too positive in the past, however with less distraction of having to rebuild their plant and the comfort as mentioned before of directors purchasing shares in the 1H17 I remain positive.

[Beagle]

Forest, not sure including the GFC period and aftermath, (which has a notorious effect on discretionary purchases like air travel), is especially appropriate in any averaging comparison between the two companies.
An interesting exercise you might like to do is to have a look at how the two companies are growing or not as the case may be their top line sales over the last five of six years.
AIR's sales in 2010 were $4.0b, this year well over $5b. Question you might like to consider taking into account all AIR's operational and fleet enhancement efficiency's is this, Is one company growing its business across the cycle and growing top line while the other is treading water and what does that tell you about their relative PE's ?...just food for thought mate, I'll leave it at that and good luck to you.

[BlackPeter]

Todays 1H report was slightly down on revenue and profits but full year for cast is unchanged.
The company has made very steady profits of around $20mil for the last 6 years, this was through a difficult time were their manufacturing plant in Chch was effected by the earthquake. SKL has recently rebuild there manufacturing plant this is now running to expectation.
All this would have taken a lot of management time.
Chair Liz Coutts said Skellerup’s results and financial position represented a solid performance and robust position and noted the Board and management are focussed on earnings growth.

Any reason why we should doubt Liz Coutts.

Remember SKL has paid about 8% gross dividend the last few years.

Agree. The result is only disappointing for people who stopped reading after the first 2 paragraphs. Otherwise - they kept their FY guidance (which is an, though small, increase compared to last year), they have now their brand new factory up and running and their major markets are pointing upwards.

Sure - the high NZD won't help, but SKL is not be the only company struggling with this particular issue ... hits all agriculture, all tourism (including AIR) all manufacturing and whatever else we might have on our stock exchange.

Steady as she goes ...

[Snow Leopard]

'As a 'older of some Skellerup shares I am disappointed in the drop in price on the half year result.

It is not off from my expectations and if they achieve the bottom end of full year guidance I will be contented.

Even with the current lower price I do not see it as a bargain, and have no intention of buying more.
But I ain't selling yet.

Best Wishes
Paper Tiger

[winner69]

BP when you say 'Otherwise - they kept their FY guidance (which is an, though small, increase compared to last year),' it could just as easily be less than last years $20.5m

Especially when H1 is 7% behind last year to start with eh

[BlackPeter]

BP when you say 'Otherwise - they kept their FY guidance (which is an, though small, increase compared to last year),' it could just as easily be less than last years $20.5m

Especially when H1 is 7% behind last year to start with eh

Fair enough ... my spreadsheet takes averages - i.e. I should have said "the mean value of the 2017 forecast is higher than the achieved result in 2016". But yes, you are right - the actual outcome might be as well (a wee bit) lower.

[percy]

Fair enough ... my spreadsheet takes averages - i.e. I should have said "the mean value of the 2017 forecast is higher than the achieved result in 2016". But yes, you are right - the actual outcome might be as well (a wee bit) lower.

According to www.4-traders.com that [a wee bit] lower is 8.4%.ie eps reducing from 10.7 cents ps to 9.8 cps.
The higher NZ $ is great for the likes of HLG and TNR and has no affect on EVO.

[BlackPeter]

According to www.4-traders.com that [a wee bit] lower is 8.4%.ie eps reducing from 10.7 cents ps to 9.8 cps.
The higher NZ $ is great for the likes of HLG and TNR and has no affect on EVO.

NPAT guidance today was between $20m and $22m. They do have 192.8m shares, which calculates to a lower boundary at 10.4 cents EPS and a higher boundary at 11.4 cents.

And yes, I consider the difference between 10.7 cents (FY1016) and and a lower boundary of 10.4 cents (FY2017) as "wee".

If there are up to date company forecasts I prefer them to somewhat dated 4-trader estimates.

[Jantar]

NPAT guidance today was between $20m and $22m. They do have 192.8m shares, which calculates to a lower boundary at 10.4 cents EPS and a higher boundary at 11.4 cents.

And yes, I consider the difference between 10.7 cents (FY1016) and and a lower boundary of 10.4 cents (FY2017) as "wee".

If there are up to date company forecasts I prefer them to somewhat dated 4-trader estimates.
Even at that lower boundary they can still match last year's dividends and still have retained earnings to either reduce debt or aim for growth. Matching last year's dividends at the current price is an after tax return of 6%, equivalent to a taxable return of 9%. As far as I'm concerned that is better than money in the bank. :)

[Beagle]

4traders just represents average analyst forecasts which I suspect will be downgraded somewhat after today's interim results.

This time last year with the release of the half year results the company gave guidance of $23m and still forecast profit growth compared to the previous year but only delivered $20.5m which was a material profit decline and a huge miss considering all they were forecasting was the second half, (and that after one and a half months of it having already transpired).

Regarding the analysts expectations apparently differing from company expectations for FY17...food for thought, maybe analysts have good reason to be conservative considering last years forecasting fiasco.
http://www.4-traders.com/SKELLERUP-HOLDINGS-LTD-6495638/financials/ Note average analyst view of divvy yield this year grossed up assuming full imputation credits = 7.82% gross.
Better than money in the bank, yes as long as the SP doesn't go down, but better yield than what's on offer in other cyclical companies ?

[h2so4]

Even at that lower boundary they can still match last year's dividends and still have retained earnings to either reduce debt or aim for growth. Matching last year's dividends at the current price is an after tax return of 6%, equivalent to a taxable return of 9%. As far as I'm concerned that is better than money in the bank. :)

I would be very careful adding any share to my portfolio based on a strategy of collecting dividends.

[Jantar]

I would be very careful adding any share to my portfolio based on a strategy of collecting dividends.Collecting dividends is only one of the factors I look at. I also look to ensure that the earnings support those dividends with some to spare, and that the dividends are not one off, but have been sustained or have grown for some time. Also that the the company is operating on a sound asset base and not overgeared.

[winner69]

SKL - the company that's always gunna to do wonderful things ......but financially it's doing no better now than it was 10 years or so ago .....and the share price today is inflated (as it was in 2006) above reasonable value because punters believe that these gunna things are actually going to happen.

The only way to look at SKL is for its dividend.Yes they have been pretty consistent

But today might not be the best time to buy SKL for it's dividend - a decent capital loss is possible if what has happened in the past happens again.

Here's one of those guru investor charts (forgot his name again) that shows the actual SKL share price and what it would have been if it traded on a PE of 12. Over the time period on the chart the average has been 12 nd it has for many years tracked this nicely - the times the share price has got ahead of itself it has ended in tears. And today is one of those times as SKL is on a PE of 15

Won't comment on the cyclical nature of the SKL share price

Just an update on my morbid fascination of another company that's always gunna do wonderful things but never delivers - Selwyn should recognise this and stop talking about growth (gunna things) and accept that SKL is just a steady earner with no growth over the business cycle that pays a reasonable dividend most of the time.

[Beagle]

I believe your post Winner hits the nail squarely on the head.

[Snoopy]

SKL - the company that's always gunna to do wonderful things ......but financially it's doing no better now than it was 10 years or so ago .....and the share price today is inflated (as it was in 2006) above reasonable value because punters believe that these gunna things are actually going to happen.

The only way to look at SKL is for its dividend.Yes they have been pretty consistent

But today might not be the best time to buy SKL for it's dividend - a decent capital loss is possible if what has happened in the past happens again.

Here's one of those guru investor charts (forgot his name again) that shows the actual SKL share price and what it would have been if it traded on a PE of 11. Over the time period on the chart the average PE has been 11 and it has for many years tracked this nicely - the times the share price has got ahead of itself it has ended in tears. And today is one of those times as SKL is on a PE of 15

Won't comment on the cyclical nature of the SKL share price



An interesting chart. But generally when a share is on a cyclical low the PE goes up (because the earnings have gone down) and vica versa. In Other Words, when earnings are high, then the share price isn't bid up in accordance with the earnings, because shareholders know a cyclical earnings fall is coming. So is it realistic to assume a PE of 11 all through the business cycle? I prefer to interpret the chart as saying that we are now at a cyclical earnings low for SKL.

Dairy Farmers looking at profit again, but the extra cash hasn't arrived in their bank accounts yet. Iron Ore producers raking in the money again, but they need to pay down debt with the excess cash first. It will come right. Not too much to worry about where I sit, provided you didn't pay too much for your SKL shares in the first place!

SNOOPY

discl: hold SKL

[Snow Leopard]

How does your Dividend thingy work out for Skellerup, Snoopy?

I bet you can get $1.51 at 7.5% gross out of it.

Best Wishes
Paper Tiger

[h2so4]

Collecting dividends is only one of the factors I look at. I also look to ensure that the earnings support those dividends with some to spare, and that the dividends are not one off, but have been sustained or have grown for some time. Also that the the company is operating on a sound asset base and not overgeared.

Yes I know. I just posted that incase someone thought it was a good idea for their hard earned money.

[Snoopy]

How does your Dividend thingy work out for Skellerup, Snoopy?




YearDividendsDividend Total


20124.0c+3.0c7.0c


20135.0c+3.0c8.0c


20145.0c+3.5c8.5c


20155.0c+3.5c8.5c


20165.5c+3.5c9.0c


Total41.0c



Averaged over 5 years, the dividend works out at 41.0/5 = 8.2c (fully imputed).

So based on a 7.5% gross yield, fair value for SKL is:

8.2 / (0.075 x 0.72) = $1.52




I bet you can get $1.51 at 7.5% gross out of it.

Best Wishes
Paper Tiger


You'd be right. Isn't that Spooky... :-)

SNOOPY

[Snow Leopard]

http://i7.photobucket.com/albums/y269/TheTigerWithNoName/SharetraderImages/NZX-SKL/NZX-SKL-20170216.png

A quick glance, a bit of mental arithmetic, and a sanity check.
The current SP looked a likely target.

Best Wishes
Paper Tiger

Note: did not record payment dates until 2015

[winner69]

So H1 NPAT down 7% but H2 gunna be up 20%

That's good

[winner69]

An interesting chart. But generally when a share is on a cyclical low the PE goes up (because the earnings have gone down) and vica versa. In Other Words, when earnings are high, then the share price isn't bid up in accordance with the earnings, because shareholders know a cyclical earnings fall is coming. So is it realistic to assume a PE of 11 all through the business cycle? I prefer to interpret the chart as saying that we are now at a cyclical earnings low for SKL.
.....l.

Snoopy - so why does the SKL PE remain pretty consistent when SKL profits fall or rise (period in 2007/2009 good example). You theory would have suggested a high PE through this period but it remained about the average. SKL share price doesn't behave lie true cyclicals.

Are SKL profits cyclical? Not really methinks (if they were one is at the top if the cycle now)

Why not really -


When things go against them they have little resilience to manage themselves through these times. This results in disappointing profits

When things should be going their way they fail to capitalise on the opportunities - poor execution of those gunna to do this and gunna to do that strategies. This results in profits about the $20m mark. Seems the best they can do.

Have things changed?

[Snoopy]

Around ten years ago (2006) Skellerup did a bit of soul searching. What are our strengths going forwards? They answered their own question in three parts:

a/ A wealth of experience in technical polymer (mostly rubber) development and production.
b/ The ability to make use of low cost manufacturing, both in house and outsourced.
c/ The ability to make best use of global distribution networks.

This re-evaluation meant that parts of the ‘old’ Skellerup were divested as acquisitions that fitted with the three core strengths were made. I think of FY2006 as the start of the ‘new’ Skellerup. FY2006 was perhaps not co-incidentally, the same year the company became Skellerup (from Skellmax), by name once again. So FY2006 is the first year of data that I have considered in my 're-evaluiation' exercise.



Snoopy - so why does the SKL PE remain pretty consistent when SKL profits fall or rise (period in 2007/2009 good example). You theory would have suggested a high PE through this period but it remained about the average. SKL share price doesn't behave like true cyclicals.


As referenced in my own previous post, I saw 2006 as the dawn of the 'new' Skellerup. I think the plan back then was to break out of the gumboot manufacturer image. The plan was 'reinvention as a growth company'.

I bought the growth story when I invested in SKL for the first time. But when growth stalled last year, I re-evaluated SKL as a dividend paying cyclical. No capital was lost though, because I never overpaid for my SKL shares in the first instance. My point is, I am not sure myself that SKL is a true cyclical. The dairy and iron ore downturns that came together really took the wind out of the SKL growth engine. If you look at the earnings numbers, then SKL isn't growing. But with the two king hits they took, is this a surprise? And can you blame SKL management for not seeing the crash in iron ore and milk prices coming together?

2007 to 2009 was when the 'new growth strategy' (sic) was bedding in. So perhaps it was unfair to expect SKL to behave like a cyclical over that time period?



Are SKL profits cyclical? Not really methinks (if they were one is at the top if the cycle now)

Why not really -


When things go against them they have little resilience to manage themselves through these times. This results in disappointing profits

When things should be going their way they fail to capitalise on the opportunities - poor execution of those gunna to do this and gunna to do that strategies. This results in profits about the $20m mark. Seems the best they can do.

Have things changed?

If your main customers are 'commodity producers', is it fair to suggest that their suppliers have 'little resilience' in a downturn? According to Skellerup management, SKL is making essential consumables for both dairy and iron ore mining. So at the first hint of 'free cash' for their customers, we should see an upturn? How could SKL manage things better?

Not sure what you are referring to about failing to capitalize on opportunities when things are good?

SNOOPY

[winner69]

Snoopy - all that 'soul searching' and building a new company based on their strengths has resulted in lower profits (per share basis) than what they were achieving beforehand.

Another example of we gunna do this and ..........but maybe a new era is dawning as 2020 approaches.

[sb9]

10

10:22:05 am

152

1,000,000

$1,520,000

Off Market




May be Sir Cushing or some large overseas fund on accumulation phase again...all good!!!

[Snoopy]

10
10:22:05 am
152
1,000,000
$1,520,000
Off Market



May be Cushner or some large overseas fund on accumulation phase again...all good!!!

Didn't know Trump's son in law was into Skellerup, but all good. Wait for the twitter post for it all to go viral. Buy buy buy!

SNOOPY

[winner69]

10
10:22:05 am
152
1,000,000
$1,520,000
Off Market



May be Cushner or some large overseas fund on accumulation phase again...all good!!!

.....and no worries eh

[sb9]

Didn't know Trump's nephew was into Skellerup, but all good. Wait for the twitter post for it all to go viral. Buy buy buy!

SNOOPY

Errr..apologies meant Sir Cushing....must be that Trump halo affecting the world these days :)

[macduffy]

What a lot of discussion around a stock that few posters appear to hold!

A question - when the markets for your two major product groups take a hit what other option does a company's management have to grow earnings in the short term? Remember, this is a manufacturer of specialised industrial rubber products.

Disc: Yes, I hold a few.

:cool:

[Snow Leopard]

So H1 NPAT down 7% but H2 gunna be up 20%

That's good

Gunna sell a lot of gumboots.
Looks like the market likes that 20% per annum future growth :p.


Best Wishes
Paper Tiger

[Snoopy]

YearDividendsDividend Total


20124.0c+3.0c7.0c


20135.0c+3.0c8.0c


20145.0c+3.5c8.5c


20155.0c+3.5c8.5c


20165.5c+3.5c9.0c


Total41.0c



Averaged over 5 years, the dividend works out at 41.0/5 = 8.2c (fully imputed).

So based on a 7.5% gross yield, fair value for SKL is:

8.2 / (0.075 x 0.72) = $1.52



I have updated my valuation using the latest five years of 'rolling data'. It is always a bit of a judgement call doing this. I have to ask myself if the data from FY2012 is still representative. In the case of PGW (as worked through on the PGW thread) I would say 'yes'. In the case of SKL I would say 'no'. I think the SKL growth plan is well enough bedded in to suggest that dividends will not regress to FY2012 levels. So what does dropping the FY2012 dividend payments and adding the FY2017 dividend payments do for my valuation?



YearDividendsDividend Total


20135.0c+3.0c8.0c


20145.0c+3.5c8.5c


20155.0c+3.5c8.5c


20165.5c+3.5c9.0c


20175.5c+3.5c9.0c


Total43.0c



Averaged over 5 years, the dividend works out at 43.0/5 = 8.6c (fully imputed).

So based on a 7.5% gross yield, 'fair value' for SKL is:

8.6 / (0.075 x 0.72) = $1.59

Now using my plus and minus 20% range to get a feel how the SKL share price might behave at the top and bottom of its business cycle.

Top of Busines Cycle Valuation: $1.59 x 1.2 = $1.91
Bottom of Busines Cycle Valuation: $1.59 x 0.8 = $1.27

At close to $1.50, I would put SKL as a reasonable 'accumulate' proposition, particularly as it is still cum the 3.5c dividend up until March 10th.

SNOOPY

[Jantar]

Looking at today's trades, would anyone have guessed that SKL is ex div today? Looks like the market simply hasn't reacted at all.

[sb9]

Looking at today's trades, would anyone have guessed that SKL is ex div today? Looks like the market simply hasn't reacted at all.

So true, am expecting this to slowly creep back to 160s over next few weeks..

[percy]

So true, am expecting this to slowly creep back to 160s over next few weeks..

Yeah right.!

[BlackPeter]

Just for the record ... sold out given the ongoing "flirtation" with the MA100 and in my view limited upwards potential (forward PE of 13 and hardly any growth).

Still think it is a good company ... and plan to come back when the price is right.

[Beagle]

Just for the record ... sold out given the ongoing "flirtation" with the MA100 and in my view limited upwards potential (forward PE of 13 and hardly any growth).

Still think it is a good company ... and plan to come back when the price is right.

Duly noted. Couta1 also noted in a recent post, (not in the AIR thread), that he no longer holds any AIR shares.
Disc: Still holding my AIR shares as a modest part of a well diversified portfolio.

[sb9]

1
17
2:16:54 pm
151
1,500,000
$2,265,000
Off Market

[kiwico]

Does SKL have a dividend reinvestment programme or not? According to the (admittedly crappy) Computershare website SKL has a drip but unlike other shares with a DRP there is no ability to sign up to it. I know some companies have a drip but don't apply it every time (take EBO for example) but the Computershare setup with SKL seems a bit odd. Cheers.





87938792

[Snow Leopard]

You have to [shudder] fill out a paper form and send it to them to be able to join the Drip!

Best Wishes
Paper Tiger

[Scrunch]

You have to [shudder] fill out a paper form and send it to them to be able to join the Drip!

Best Wishes
Paper Tiger

I think they have a suspended Drip - I'd enrolled and have received cash for all shares since 2010.

Disc holder

[Snow Leopard]

Nice little uptrend price wise - obviously the cognoscenti know a good thing when they see it.

Me - I am having difficulty keeping my eyes open - spent the entirety of the flights back home watching movies (including a Star Wars Movie that had Mads Mikkelsen in it but otherwise was exactly the same as every other SW movie).

https://s-media-cache-ak0.pinimg.com/736x/2e/f5/74/2ef57478265786a59526493fe2b6406e.jpg

Best Wishes
Paper Tiger

[kiora]

Vote of confidence a good sign for more of the same.Not too shaby
http://www.stocknessmonster.com/news-item?T=rDjPDlOuzRI11hlbX1uhZD&E=NZSE&S=SKL&N=305043

[winner69]

Vote of confidence a good sign for more of the same.Not too shaby
http://www.stocknessmonster.com/news-item?T=rDjPDlOuzRI11hlbX1uhZD&E=NZSE&S=SKL&N=305043

David is only a shareholder in Public Trust Forte Nominees Limited who bought these shares. He says he is not involved in the day to day operations of that company

So others besides DAvid see good things in SKL

[Jantar]

David is only a shareholder in Public Trust Forte Nominees Limited who bought these shares. He says he is not involved in the day to day operations

So others besides DAvid see good things in SKL
On the very first page of the HY17 results this is the first name shown:
David Mair | CEO & Executive Director

Is the CEO really not involved in the day to day operations? That would raise a concern for me.

Or as a Non-beneficial interest as shareholder of fund manager, wouldn't that be insider trading?

Either way, the fact that he is buying shows a confidence in the future earnings of the company.

[winner69]

On the very first page of the HY17 results this is the first name shown:
David Mair | CEO & Executive Director

Is the CEO really not involved in the day to day operations? That would raise a concern for me.

Or as a Non-beneficial interest as shareholder of fund manager, wouldn't that be insider trading?

Either way, the fact that he is buying shows a confidence in the future earnings of the company.

Said David is not involved in the day to day operations of Public Trust Forte who bought these shares. Mair did not buy these latest shares.

For those shares he has a non-benficial interest. He does have some in a Trusts name where he has a beneficial interest

[Jantar]

Looks like a very good result:

• NPAT of $22.1 million up 8% on the prior year.
• Final dividend increased to 6.0 cents per share bringing the total dividend to 9.5 cents per share for the full year.
• Improved earnings from both the Industrial and Agri Divisions.
• New dairy rubberware facility at Christchurch fully operational.

What I can't find, as yet, is any specific guidance on the next 12 months other than "a further improvement".

https://www.nzx.com/companies/SKL/announcements/305648

[percy]

Yes a very creditable result.
Looks to be above forecasts,and the increase in divie will keep shareholders happy.
Maybe as good as it will get.ie I can't see another 8% rise in NPAT in the coming year.
SKL have been known to talk the talk.
I don't hold.

[Beagle]

Net Profit after tax
2013 $19.0m
2014 $22.3m
2015 $21.9m
2016 $20.5m
2017 $22.1m

2017 EPS 11.46 cps. Chose whatever PE you think is appropriate for their track record and outlook.
Disc: Don't hold.

[McGinty]

To me these results are just average at best, only positive is that they slightly bet their guidance.

Here's what I see:

- A company with no growth and selling at a current P/E of 14.5 (after today's result)
- The major thing the caused them to beat last years results was the currency gain (note 4), otherwise the result would have matched last year.

- Revenue was down
- Gross profit down
- Operating Cash Flows was down
- Trade Receivable and Inventories up
- Improvement in Admin and Distribution Expenses

I follow the company as I use to hold in 2015, but sold once it was clear they were going miss guidance. Not holding now

[winner69]

Net Profit after tax
2013 $19.0m
2014 $22.3m
2015 $21.9m
2016 $20.5m
2017 $22.1m

2017 EPS 11.46 cps. Chose whatever PE you think is appropriate for their track record and outlook.
Disc: Don't hold.

At least they're consistent

If only they wouldn't call themselves a growth company and tout next year is gunna to be great

[Beagle]

At least they're consistent

If only they wouldn't call themselves a growth company and tout next year is gunna to be great

Yes its hard to forget the recent year fiasco when at one stage they were talking circa $27m from memory and then had to suffer the ignominy of three downgrades.
I'm with McGinty who I think has summed it up well.

[winner69]

Consistent performance with relatively strong cash flows (more consistent than likes of HLG) to support a pretty good dividend

Some hate to take he view of pricing equities like bonds but SKL is one that sort of merits that approach

Say F18 divie 10 cents - what sort of yield?

Maybe 6% to 7% tax paid is pretty good (risk adjusted) - so $1.60 odd for that return pretty good for those punters





And if F18 is the gunna to be great year big capital gains as a bonus.

[couta1]

Plenty of buyers and hardly any sellers.

[Puriri Pete]

Total shareholder return over the past 12 months of 30.36%, according to Sharesight, is not to be sneezed at. Shows the value of continuing to assess companies even after they have stumbled.

[Beagle]

Consistent performance with relatively strong cash flows (more consistent than likes of HLG) to support a pretty good dividend

Some hate to take he view of pricing equities like bonds but SKL is one that sort of merits that approach

Say F18 divie 10 cents - what sort of yield?

Maybe 6% to 7% tax paid is pretty good (risk adjusted) - so $1.60 odd for that return pretty good for those punters

And if F18 is the gunna to be great year big capital gains as a bonus.

Personally I can never accept that approach. If I'm taking an equity risk I expect an equity return, for example with HLG at least you get a 13.5% gross yield incl of imputation credits. At a loose level I guess some sort of analogy can be made with MPG which is trading at a similar PE level but in that case at least it has a long track record of growing the top line, something I am hoping will eventually flow through to the bottom line.
Today's SP reaction...go figure ?

[RTM]

You're a tough bunch.
They have commissioned new factory with minimal disruption. Have weathered a major downturn in Dairy and other commodity prices,
Divi is a bit higher. Outlook allegedly good. Directors from memory hold a few shares, have not checked recently.
My buy price $1.25.
May not satisfy all but happy to have and hold as part of my diversified portfolio.

[kiora]

Total shareholder return over the past 12 months of 30.36%, according to Sharesight, is not to be sneezed at. Shows the value of continuing to assess companies even after they have stumbled.

And 3.44 bagger plus dividends since 2009,8 yrs.I've seen worse thats for sure PP.Compared to bonds ?:)

[BlackPeter]

And 3.44 bagger plus dividends since 2009,8 yrs.I've seen worse thats for sure PP.Compared to bonds ?:)

Absolutely agree - they have been (given the right timing) a quite good investment ... and looking into the future they are likely to keep delivering a reasonable revenue stream. As well - board is heavily invested (which is normally a good sign).

I guess what some people are saying is that they are not really a growth company (a 8yr CAGR of 1.7% is actually (considering inflation) negative growth) ... and while they seem to be able to earn as well some money when their major markets are not looking that flash ... it is not quite clear where the next up bump is supposed to come from.

However - steady as she goes ... and I am sure people could do worse than investing in SKL.

Discl: don't hold at current ...

[Bjauck]

...
I guess what some people are saying is that they are not really a growth company (a 8yr CAGR of 1.7% is actually (considering inflation) negative growth) ... and while they seem to be able to earn as well some money when their major markets are not looking that flash ... it is not quite clear where the next up bump is supposed to come from....

The NZ Dollar is at comparatively high levels. I am not expecting a drop at this stage but any drop in the dollar may boost earnings in NZD terms? It has been an average performer (although quite volatile price wise) the few years I have had a holding. The results were slightly better than I had expected. I am continuing to hold.

[BlackPeter]

The NZ Dollar is at comparatively high levels. I am not expecting a drop at this stage but any drop in the dollar may boost earnings in NZD terms? It has been an average performer (although quite volatile price wise) the few years I have had a holding. The results were slightly better than I had expected. I am continuing to hold.

True ... a falling NZD would help. However - the experts on currencies are somewhat in disagreement. A German banker recently recommended I should invest (I am looking after my parents investments) some of them in NZD because their analysts think the Euro will tank compared to the NZD.

So yes, the NZD is in historic terms rather dear compared to other currencies, but so is the Swiss Franc :p

[Puriri Pete]

RTM - Agreed. On top of which 77% of revenue is from overseas sales so currency exchange rates have not done them any favours gaining new business. The debt to equity of 23% is reassuring too. No reason why patient investors should not continue to benefit in my view.

[macduffy]

I also agree with RTM. SKL's probably not going to turn into a top growth stock but it's done well to weather the downturn affecting it's two business sectors, dairy and mining, and has come out a stronger, better performing company. Pays a good dividend, making it a steady income stock in my portfolio. Market seems to agree - shareprice up 4% today!

[percy]

Those of you who hold are happy,those of us who don't hold, are happy too.
A real win win situation....??.........lol.

[Bjauck]

True ... a falling NZD would help. However - the experts on currencies are somewhat in disagreement. A German banker recently recommended I should invest (I am looking after my parents investments) some of them in NZD because their analysts think the Euro will tank compared to the NZD. ...
The Eurozone seems to be doing OK at the moment.
Eurozone growth smashes forecasts
http://www.dw.com/en/eurozone-growth-smashes-forecasts/a-40113502

[BlackPeter]

The Eurozone seems to be doing OK at the moment.
Eurozone growth smashes forecasts
http://www.dw.com/en/eurozone-growth-smashes-forecasts/a-40113502

That's just thanks to Brexit ☺

[Snow Leopard]

{12-Sep=2016} Sounds like an excellent opportunity to buy in or top up, if you think it has merit...

Well, well, well. Not owned them a year yet and up about 40% (dividends included).
Fairly amazing really.

I was looking around yesterday for something to sell as I have something I want to buy but the pockets are currently empty and this came up as the share most likely to go to the market.
But with today being a public holiday here (Independence Day) I had to do sight-seeing and eating stuff and generally being a Happy Tiger and so it was still in the portfolio as the sun set.

Having revalued it in light of today's results announcement I, in theory, have a one year forward value for SKL of $1.61 but the old Tiger senses tingle when I write that down and I am going with a more conservative current value of $1.48 and one year forward value of $1.54.


Best Wishes
Paper Tiger

[kiora]

After reviewing my reduced number of investments exited stage left PT to pay down some debt.Been a happy holder since the capital raise and in my mind still a well run company at all levels and a safe haven.:)

[Snow Leopard]

Sold out completely today.

Bought more CBL with the some of the proceeds.

So now need to sell something else to continue with Plan A.

While not a spectacular share if they actually achieve moderate growth and keep paying a divvy then it is not a bad share to own.

Best Wishes
Paper T

[Beagle]

For what its worth I reckon that's very good selling PT. Go buy yourself a good steak and give yourself a pat on the back.

[Snow Leopard]

For what its worth I reckon that's very good selling PT. Go buy yourself a good steak and give yourself a pat on the back.

Lunch was actually Ayam Goreng dan Jus Mangga.

Selling out of a very definite uptrend is not something I would suggest anybody does lightly.

Best Wishes
Paper Tiger

[Snoopy]

Just what business is Skellerup in? Skellerup is New Zealand’s largest industrial rubber supplier and exports to more than 30 international markets. From the FY2014 annual report:
“The Skellerup group markets develops and manufactures highly technical polymeric products and vacuum pumps. These products are distributed worldwide for a variety of specialized –industrial-AND-agricultural- products.”

Skellerup product development involves materials, product design and sales staff working together as a team.

Skellerup Industrial uses this ‘team approach’ to solve ‘niche industrial’ problems. One product, “Ultralon” foam, is being used for orthotic insoles. But Ultralon is also used in leading makes of ski boots like Atomic, Fischer, Scarpa and Scott.

The Masport pump for liquid waste is mounted on truck and trailer units all across the USA . Skellerup’s ‘Masport’ dominates that market in the shale and Hydrocarbon industry.

The ‘Flexflow’ rubber chute system, after six years of development, is now specified by BHP in their Pilbara region developments. Flexflow allows sticky yet abrasive iron ore extract to be moved with much reduced downtime. Future applications for ‘Flexflow’ could include bauxite, gypsum and coal. These three examples aren’t giant markets, but part of a wide small market niches serviced well. Skellerup’s customer focussed team approach mean they are very strong across a series of what are in global terms minnow (but profitable) markets.

Skellerup’s Agridivision manufactures and distributes products for the global dairy industry, OEMs and dairy sector distributors. Skellerup is the second largest dairy rubber supplier in the world. Delaval of Sweden claims a 50% share of the dairy market equipment globally and turnover of $NZ1.5 billion (all industry products). By contrast, the turnover of the Skellerup Agridivision in FY2014 was $80m. That means Skellerup is likely second by a long way, yet still ticks the ‘major player’ box.

Conclusion: Requirement satisfied

Skellerup is organised into two principal divisions:

1/ Agri: manufactures and distributes milking liners, tubing, filters and feeding teats. It also sells dairy vacuum pumps and other agricultural products, notably rubber footwear. Skellerup is the second largest manufacturer of dairy rubberware in the world. The new dairy rubber-ware manufacturing facility at Wigram is the base for future growth. 60% of Agridivision sales are now outside of NZ. Markets targeted for future growth are Brazil, India, China and Russia as these nations gear up to meet pent up home market demand. Growth prospects come from the ability to customise short runs of products based on Skellerup's intimate knowledge of their rubber raw materials and how it reacts with dairy animals. Given Skellerup make all their production tooling 'in house', there is no better company to design products that are lighter and more ergonomic to use. The Skellerup market presence through 'Argi' is definitely major.

2/ Industrial: manufactures technical polymers for construction, infrastructure, automotive, mining and general industrial applications. This division also sells industrial vacuum pumps. The static revenue performance of the industrial division over recent years does not give an accurate picture of the potential for this division. The near simultaneous collapse in iron ore and oil prices after 2013 hit this division hard with 50% of Industrial Division sales going to iron ore mining companies in Australia and petroleum companies in the USA. Fast forward to FY2017 and the iron ore and oil industries make up just 20% of sales. 50% of sales today are from potable water and waste water projects.

How did this market adaptation take place? In simple overall terms, much of what Skellerup does can be summed up by using rubber compound engineering to to keep liquids either 'in' or 'out'. When put in these simple terms you can see how existing rubber technology can be relatively easily adapted to other industries. Lessons learned in oil and gas transportation were directly applicable to the waste and potable water markets. Fundamental global trends of 'growing populations', 'changing weather patters (flooding more common)' , and 'ageing infrastructure in many developed cities' all produce a tailwind of opportunities that is less susceptible to the vicissitudes of commodity markets. A rubber seal is not the most expensive component of an underground piping system. But it is an absolutely critical components. So saving money on a seal is likely a poor risk strategy when the quality of the competition is unknown. Skellerup works closely with pipe manufacturers and this gives them a competitive 'moat' that potential competitors will find hard to breach.

So is Skellerup's presence in industrial rubber 'major' in a global context? Skellerup supplies critical rubber componentry for other industrial manufacturers. Few would know that Skellerup manufactures all the drive shaft couplings in their Italian factory for the Mercedes Benz E class cars that are made for the Chinese market , for example. Yet no-one would call Mercedes Benz a minor player in the luxury Chinese car market. I think being a manufacturer of world class componentry qualifies Skellerup as 'major players', albeit in their own specialised niche of rubber products.

To summarize,

1/ Strong and deep relationships not just with manufacturing partners but also final end users, AND
2/ Industrial standards and approval processes that provide a barrier to entry for competitors, AND
3/ Adapability of rubber technology across industries opening up organic growth opportunities

provide solid reasons to expect that Skellerup will continue as a strong player in the niche markets where they choose to operate.

Conclusion: Pass Test

SNOOPY

[Snoopy]

Time to update the eps figures from a five year perspective

2011: ($29.560-$0.265-$9.360)m/ 192.806m = 10.3cps
2012: ($34.493-$1.663m-$10.229)m/ 192.806m = 11.7cps
2013: ($26.631-$0.871-$7.595)m/ 192.806m = 9.4cps
2014: ($29.202-$0.093-$8.458+$1.6)m/ 192.806m = 11.5cps
2015: ($30.956-$0.558-$9.023)m/ 192.806m = 11.1cps

Conclusion: Fail test


2013: ($26.631-$0.871-$7.595)m/ 192.806m = 9.4cps
2014: ($29.202-$0.093-$8.458+$1.6)m/ 192.806m = 11.5cps
2015: ($30.956-$0.558-$9.023)m/ 192.806m = 11.1cps
2016: ($29.099+$0.800+$1.275-$8.429+0.28*$0.145)m /192.806m = 11.8cps
2017: ($31.435-$2.507-$9.300+0.28*$0.025)m /192.806m = 10.2cps

Notes:
a/ Results for all years have had foreign exchange currency gains removed. Foreign currency gains (or losses) are not a measure of operational business performance.
b/ Result for FY2014 adds back a $1.6m long standing warranty dispute adjustment.
c/ Result for FY2016 adds back $800,000 in restructuring costs.
d/ Result for FY2017/FY2016 adjusts for not including a $25,000/$145,000 cost from relocation expenses respectively, by adding back the 'after tax' effect of not having incurred these costs.

Conclusion: Fail test

SNOOPY

[Snoopy]

Time for a FY2015 perspective update:

2011: $19.935m /$110.325m= 18.1%
2012: $22.600m /$121.372m= 18.6%
2013: $18.165m /$124.673m= 14.6%
2014: $22.251m /$144.691m= 15.4%
2015: $21.375m /$159.660m= 13.3%

Conclusion: Requirement satisfied


2013: $18.165m /$124.673m= 14.6%
2014: $22.251m /$144.691m= 15.4%
2015: $21.375m /$159.660m= 13.3%
2016: $22.786m /$155.855m= 14.6%
2017: $19.635m /$159.247m= 12.3%

Conclusion: Fail test

SNOOPY

[Snoopy]

An update on perspective from the FY2015 financial year

2011: $19.935m /$193.593m= 10.3%
2012: $22.600m /$207.313m= 10.9%
2013: $18.165m /$189.496m= 9.6%
2014: $22.251m /$196.606m= 11.3%
2015: $21.375m /$203.011m = 10.7%

The above is a fairly flat looking margin trend. But with inflation near zero, margins are largely holding up.

Conclusion: Requirement satisfied


2013: $18.165m /$189.496m= 9.6%
2014: $22.251m /$196.606m= 11.3%
2015: $21.375m /$203.011m = 10.7%
2016: $22.786m /$211.415m= 10.8%
2017: $19.635m /$210.232m= 9.3%

After a grudgingly but nevertheless slowly persuasive increase in net profit margin in recent years, FY2017 has reversed all the good work. The last time profit margins were this low was in FY2010! I guess shareholders will have to hope that FY2017 was a rogue transition year?

Conclusion: Fail test

SNOOPY

[Snoopy]

Skellerup meets all the criteria of being a Warren Buffett style growth company. This growth is largely overseas. So Skellerup have proved that they can work outside of the ‘New Zeland box’. Skellerup has done this through the development of offshore-based manufacturing sites and distribution channels.

Subsidiary Gulf industries in Australia have access to manufacturing facilities in Vietnam. The famous Red label Skellerup gumboots, and their more upmarket and specialized Quatro brand cousin, are designed in New Zealand. But manufacturing is done in low cost China.

In 2014 Skellerup bought ‘Thermoplastic Foam Industries’ as a distribution platform for the wider group Skellerup products within. Australia. Likewise in 2007, Skellerup bought ‘Turenedi’ in Itaily as their beachhead into Europe. Fully owned US subsidiary “Canewango” does a similar job in the Americas.

Skellerup have shown their ability to reinvest profits at rates of return that far outstrip their cost of capital over many years. This more than makes up for what on paper today is an average dividend payer. IMO Skellerup is one of those below the radar NZX gems that if bought at the right price should prove a very rewarding investment.

SNOOPY

disclosure: New shareholder

I wrote the above based on the FY2014 perspective, and my how things have changed. From being in a position to pass 'all four' of the Buffett growth tests, the FY2017 Skellerup only passes one! The biggest surprise, and one that was not evident from a casual read of the published earnings was the very significant $2.507m foreign currency gain that made the headline FY2017 result look a lot better ( 'above guidance' [sic] ) than it really was. Of course this doesn't mean that SKL has necessarily become a dud investment. It just means that the 'Buffett Growth Model' will likely prove unreliable as a predictor, so a different valuation technique is required.

I refer readers to my post 614, using an alternative valuation technique, the 'Capitalised Dividend Valuation Method', based on an FY2017 perspective. I quote from the end of that post:

-----

Now using my plus and minus 20% range to get a feel how the SKL share price might behave at the top and bottom of its business cycle.

Top of Business Cycle Valuation: $1.59 x 1.2 = $1.91
Bottom of Business Cycle Valuation: $1.59 x 0.8 = $1.27

------

At $1.71 (the Friday close) and just ex a 6c dividend, I would regard SKL as 'ever so slightly overvalued', but still well within fair valuation bounds. I am a long term holder and consequently won't be either buying or selling based on any revelations from the results of the FY2017 financial year.

SNOOPY

[Snoopy]

2016: ($31.435-$3.412-$9.300+$0.025x0.28)m /192.806m = 9.7cps

Notes:

d/ Result for FY2016 removes the tax effect of not including a $25,000 cost from relocation expenses.


Just making an on line note to myself so that I don't get confused in the future when looking back over this:

1/ I don't believe that relocation costs are indicative of the ongoing picture of the Skellerup business. THEREFORE
2/ I should remove the relocation costs of $25,000 from this year's results for ongoing comparative purposes.
3/ If the relocation costs had not occurred, then NPAT for the year would be higher.
4/ The $9.300m tax bill for the year takes into account the $25k in relocation costs as a pre-tax expense. If this $25k cost had not happened, then the NPAT after tax for the year would be higher by the amount of extra tax not paid, as a result of the relocation costs not being incurred. This amount, which comes in as 'extra profit' calculates out, assuming a 28% tax rate, as:

$0.025m x 0.28

SNOOPY

[Snoopy]

I didn't realise this not first profit down grade this financial year

When announcing FY15 profit $21.9m they said well placed to further grow profits

At ASM before excited shareholders on 29 Oct it was going to be $24m-$26m

H1 results nit looking too good and on Feb 18 still ahead of last and guided $23m

And now jeez $20m-$21m

So from $26m to $20m in a few months

Wonder what next announcement in July will be like

Skellerup - always gunna to do great things

It is informative to 'track back' through the annual reports and see what growth plans they announced to the auditors as the goodwill on the books was assessed annually. Shareholders can find this information under the 'Intangible Asset' section of the Annual Report.

Revenue assumptions

FY2014 take

"Revenues have been forecast to moderately increase over the following five-year period in line with the Group’s strategic business plans to develop
and introduce new products, in addition to continuing to support and grow the Group’s existing global customer relationships." (actual overall revenue increase FY2015 to FY2014: 3.3%)

FY2015 take

"The revenue growth percentages range from 3% to 20% on average per annum over the five years across the individual cash generating units." (actual overall revenue increase FY2016 to FY2015: 4.1%)

FY2016 take

"The revenue growth percentages range from 3% to 20% on average per annum over the five years across the individual cash generating units." (actual overall revenue increase FY2017 to FY2016: -0.5%)

FY2017 take

"The revenue growth percentages range from 2% to 15% on average per annum over the five years across the individual cash generating units." (actual overall revenue increase FY2018 to FY2017: 14%)

Looking out from June 30th 2015 and June 30th 2016, there were some pretty bullish growth assumptions built in. Looks like the new Chair Liz Coutts may have reigned in those expectations a bit. But they are still backing themselves. A 15% revenue growth compounding over five years is:

1.15^5 = 200%

That is a 100% increase in business from the base determined five years previously. For sure it is gunna happen this time?

SNOOPY

[winner69]

It is informative to 'track back' through the annual reports and see what growth plans they announced to the auditors as the goodwill on the books was assessed annually. Shareholders can find this information under the 'Intangible Asset' section of the Annual Report.

Revenue assumptions

FY2014 take

"Revenues have been forecast to moderately increase over the following five-year period in line with the Group’s strategic business plans to develop
and introduce new products, in addition to continuing to support and grow the Group’s existing global customer relationships."

FY2015 take

"The revenue growth percentages range from 3% to 20% on average per annum over the five years across the individual cash generating units."

FY2016 take

"The revenue growth percentages range from 3% to 20% on average per annum over the five years across the individual cash generating units."

FY2017 take

"The revenue growth percentages range from 2% to 15% on average per annum over the five years across the individual cash generating units."

Looking out from June 30th 2015 and June 30th 2016, there were some pretty bullish growth assumptions built in. Looks like the new Chair Liz Coutts may have reigned in those expectations a bit. But they are still backing themselves. A 15% revenue growth compounding over five years is:

1.15^5 = 200%

That is a 100% increase in business from the base determined five years previously. For sure it is gunna happen this time?

SNOOPY

Only one 'cash generating unit' is assumed to grow at 15% pa - other units less

Which one is that?

[Gonzo]

my forbar adviser reckons SKL will get taken out by some foreign thieves

[BlackPeter]

my forbar adviser reckons SKL will get taken out by some foreign thieves

Not very likely. Nobody can steal a listed company ...

What he probably means is that somebody could buy them off NZ owners - and this only works if the NZ owners are either wise or stupid enough to sell.

Whatever it is - nothing wrong with foreigners making an offer. If the offer is accepted it is the fault of the people selling ...

[Snoopy]

Only one 'cash generating unit' is assumed to grow at 15% pa - other units less

Which one is that?

Given the overall level of increase in revenue is much smaller than 15%, and given that all the geographical segment revenue is pretty much static (Annual report Note 1b) except for 'other', it might be something Skellerup has acquired in a developing market. Maybe they intend to sell 115 pairs of gumboots in Vietnam this year, up from 100 last year?

SNOOPY

[winner69]

Snoops me old mate

The Note on Intangibles listd the 4 Cash Generating Units.

Cash-generating unit with goodwill in $000
Gulf 32,937
Ambic 7,078
Deks 3,728
Stevens Filterite 431
Total goodwill 44,174

One of these CGUs has assumed revenue growth of 15% pa and one (probably only 1) has growth at 2% pa

Which one sells gumboats in Vietnam?

My guess the 15% growth unit is Gulf seeing that gets the biggest rave in the AR ....or it might be Stevens Filterite seeing it seems to be the smallest 'acquisition'

No doubt you have already sussed that the assumptions used to test goodwill are nothing to do with any assumed total company,division or geographical growth

[Snoopy]

Snoops me old mate

The Note on Intangibles listed the 4 Cash Generating Units.

Cash-generating unit with goodwill in $000
Gulf 32,937


http://www.skellerupholdings.co.nz/Mobile/Industrial.php

"Gulf Rubber is an internationally recognised designer and manufacturer of a range of compressed and moulded thermoplastic elastomers. Products include pipe seals, diaphragms, washers, gaskets, customised rubber mouldings, check valves, O rings, disks and other components for a wide range of global customers in industries including automotive, industrial, mining pipe, valve and medical."

from p10, Annual Report 2013

-----

Gulf Rubber was acquired in 2006. Gulf Rubber encompasses design and manufacturing activities in Australia, New Zealand and Italy, and a sales and distribution facility in the USA. Located near Charlotte, North Carolina, Gulf US is at the heart of a significant manufacturing belt in the USA. Prior to establishing its US facility in early 2012, Gulf Rubber serviced its US customers from Australia. By setting up in a 2,000m2 climate-controlled warehouse, complete with quality control and metrology laboratory, Gulf US has created meaningful benefits for its industrial, appliance, plumbing and automotive customers.

This Gulf purchase included a valuable relationship with Ruthimex, a contract manufacturing partner based in Vietnam. The demonstrated ability of the Ruthimex operation has enabled the relationship to grow significantly over the past seven years to include products in the Deks roofing and plumbing products range and, most recently, from the manufacture of Ultralon foam products."

-----



Ambic 7,078


http://www.skellerupholdings.co.nz/Mobile/Agri.php

"Ambic is a world leading specialist in the development, production and distribution of dairy hygiene and livestock health management products. In particular, Ambic is the world's leading supplier of mastitis prevention and mastitis detection equipment"

Ambic was acquired by Skellerup in 2005.



Deks 3,728


http://www.skellerupholdings.co.nz/Mobile/Industrial.php

DEKS designs and supplies sealing and waterproofing products for roofing, plumbing and civil/underground applications. Operating internationally, Deks has a strong market presence in Australia, North America, Asia and Europe and a growing presence in South America. DEKS brands are internationally recognised and have been sold throughout the world for more than 40 years.



Stevens Filterite 431


http://www.skellerup.co.nz/dairy-international/milk-filters

"a proud history of manufacturing only the highest quality milk filters to the global dairy market."

Manufacturing base: Featherston NZ

This link:

http://www.skellerupholdings.co.nz/Mobile/Agri.php

says they only service the Australasian market. So maybe they are in the middle of a plan to take 'Stevens Filterite' global?



Total goodwill 44,174

One of these CGUs has assumed revenue growth of 15% pa and one (probably only 1) has growth at 2% pa

Which one sells gumboats in Vietnam?


Gulf, via they contract manufacturing arrangement in Vietnam ;-P?



My guess the 15% growth unit is Gulf seeing that gets the biggest rave in the AR ....or it might be Stevens Filterite seeing it seems to be the smallest 'acquisition'


They made a point in AR2016 about securing the contract for driveline couplings for Chinese market Mercedes E Class vehicles.

http://carsalesbase.com/china-car-sales-data/mercedes-benz/mercedes-benz-e-class/

A total of 57,439 were made in China last year (2016). Sales to the end of August 2017 were already 74,816 with still four months of the year to go. So looks like SKL could be onto a winner here.

Before this contract the main driveline coupling success story was Maserati

http://carsalesbase.com/us-car-sales-data/maserati/

But as you can see total sales for all models were only 12.534 in 2016. So it is the Mercedes contract that has put Skellerup driveline couplings in a different league.

The AR2017 presentation p5 highlights the large infrastructure opportunities coming up in Auckland and Melbourne in particular

-----

• Government spending in NZ, AUS and US on infrastructure expected
‒ Auckland Watercare ~NZD 4.9bn, 10 years.
‒ Victoria Water ~AUD 5.6bn, 5 years.
‒

-----

So those growth projections could be for Gulf.

Yet, given we are talking 'revenue growth', that is easier to get from a small base. For this reason I am guessing the 15% revenue growth projection is most likely from 'Stevens Filterite' going global.



No doubt you have already sussed that the assumptions used to test goodwill are nothing to do with any assumed total company,division or geographical growth


The assumptions to test goodwill must be related to projected divisional growth surely? Because the goodwill was acquired as a direct result of the purchase of a certain division. And if that division doesn't meet its growth projections then goodwill might be, but not necessarily (if the price paid did not assume a very aggressive future growth strategy would be fulfilled), come up for impairment?

SNOOPY

[Scrunch]

2013: ($26.631-$0.871-$7.595)m/ 192.806m = 9.4cps
2014: ($29.202-$0.093-$8.458+$1.6)m/ 192.806m = 11.5cps
2015: ($30.956-$0.558-$9.023)m/ 192.806m = 11.1cps
2016: ($29.099+$0.800+$1.275-$8.429+$0.145x0.28)m /192.806m = 11.8cps
2016: ($31.435-$3.412-$9.300+$0.025x0.28)m /192.806m = 9.7cps

Notes:
a/ Results for all years have had foreign exchange currency gains removed. Foreign currency gains (or losses) are not a measure of operational business performance.
b/ Result for FY2014 adds back a $1.6m long standing warranty dispute adjustment.
c/ Result for FY2016 adds back $800,000 in restructuring costs and removes the tax effect of not including a $145,000 cost from relocation expenses.
d/ Result for FY2016 removes the tax effect of not including a $25,000 cost from relocation expenses.

Conclusion: Fail test

SNOOPY

Interestingly if a less accurate adjustment is made around the 2014 result (just removing the insurance income settlement and not adding back the warranty dispute costs) then the test is passed. The $1.6m add-back pushes the EPS up to 11.5c and if it wasn't made, the EPS would have been 10.7c. This falls between 9.7c and 11.1c meaning 2016 would be the only set-back.

[winner69]

The assumptions to test goodwill must be related to projected divisional growth surely? Because the goodwill was acquired as a direct result of the purchase of a certain division. And if that division doesn't meet its growth projections then goodwill might be, but not necessarily (if the price paid did not assume a very aggressive future growth strategy would be fulfilled), come up for impairment?

SNOOPY

Skellerup only report two divisions - Agri and Industrial (plus the Corporate Gravy Train)

The 'brands' we are talking about can belong to one or by the looks of it both. Part of the Notes say
Goodwill acquired through business combinations has been allocated to the business units acquired. Subsequent business reorganisations within the Group have resulted in some original cash-generating units (CGU) being combined with other Group businesses. In such circumstances, the original goodwill has been allocated across the combined cash-generating unit to determine fairly the recoverable amount against the value in use. In the prior year a business reorganisation resulted in the Thorndon and Ultralon Australia CGUs being combined with the Gulf CGU.


Next bit of your homework - There's more to Skellerup than just these brands (yes?) so how much you reckon these brands make up of total Skellerup revenues?

Point still is the 3% to 15% growth they assume as part of testing goodwill is till not necessary (or very unlikely) either expected divisional or company revenue growth

[Snoopy]

Interestingly if a less accurate adjustment is made around the 2014 result (just removing the insurance income settlement and not adding back the warranty dispute costs) then the test is passed. The $1.6m add-back pushes the EPS up to 11.5c and if it wasn't made, the EPS would have been 10.7c. This falls between 9.7c and 11.1c meaning 2016 would be the only set-back.


On p4 of AR2014 the wording with reference to the significant $1.6m one off charge, when talking about profit, was:

"despite absorbing the large $1.6 million net cost for settlement of a historical product claim."

This charge was not highlighted in the 'financial section' of the Annual Report for 2014 at all to my knowledge. This indicates management regarded it as just part of 'normal business'. The phrase 'less accurate' that you used Scrunch, when looking at the FY2014 result without this charge you could see as 'more accurate' from a management judgement view. The point I am making here is that these results are all 'judgement calls' to some extent. So Scrunch your 'less accurate' interpretation of the FY2014 NPAT result I would regard as neither more nor less accurate than mine.

In the case of passing the 'Buffett Tests', this change of judgement would not affect the results of T3 and T4. Applying the Buffett Growth model' requires that all of the tests be passed. So it makes no difference to my Skellerup valuation in this instance. However, I thank you for highlighting an alternative view.

SNOOPY

[winner69]

This is good news snoops

Speaking ahead of today’s Annual Shareholders’ Meeting, Skellerup Chair Liz Coutts said trading for Q1 of the current year was strong, generating EBIT in excess of 10% ahead of the comparable quarter in the prior year.

Mrs Coutts said “We expect an improvement in underlying profitability for the FY18 year ahead. However, experience tells us it is too early in the year, given the seasonal nature of our business for us to provide any further guidance.”

If

[winner69]

Stunning half year result

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SKL/314247/274475.pdf

Doesn’t look like too much can go wrong from here for Skellerup

Maybe past the gunna era .....and into the dunnit era

Good stuff

[Filthy]

fantastic result & better than what I had expected.

increase in the divi and forecast, plus plenty of room for future growth.

v happy holder



filthy

[percy]

Stunning half year result

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SKL/314247/274475.pdf

Doesn’t look like too much can go wrong from here for Skellerup

Maybe past the gunna era .....and into the dunnit era

Good stuff

Been there before and ended up a poor year.
That was with Sir Selywn.
Luckily for shareholders Chair Liz Coutts is more credible.

[Scrunch]

Net Profit after tax
2013 $19.0m
2014 $22.3m
2015 $21.9m
2016 $20.5m
2017 $22.1m

2017 EPS 11.46 cps. Chose whatever PE you think is appropriate for their track record and outlook.
Disc: Don't hold.

The forecast is now $24.5 to $26.0m. Good growth if the bottom end is hit. Very good growth if the mid-upper end is hit. Lingering question what confidence do I have the result will be either inside the range estimated or above it?

[macduffy]

The forecast is now $24.5 to $26.0m. Good growth if the bottom end is hit. Very good growth if the mid-upper end is hit. Lingering question what confidence do I have the result will be either inside the range estimated or above it?

I'd have more confidence in this board's forecasts than in most, as percy suggests. Incidentally, Chair Liz Coutts and Alan Isaac are also key directors of OCA, FWIW.

Disc: I hold both.

[Snoopy]

fantastic result & better than what I had expected.

increase in the divi and forecast, plus plenty of room for future growth.

v happy holder



I was a little disappointed with this:

"Future dividends are likely to carry only partial imputation (~60%) as the growth in earnings is largely coming from Skellerup’s international operations."

However, on reflection it isn't really a surprise. Local manufacturing is directed towards the Agribusiness side of things, and even then the gumboots are made in Vietnam. It looks like most of the growth in the future will be in other areas, products made overseas for customers overseas. There are no imputation credits available for NZ shareholders from a manufacturing business that is structured in this way.

Given that the industrial division is the growth engine of the future, I was excited to see the break down by 'application' (p4 of the HY2018 presentation). I immediately looked back a year to see how the revenue streams had changed one year on. However no such equivalent break down was given in the HY2017 slide show. The emphasis there was on the geographical spread of sales and that wasn't mentioned this half year. I do find it frustrating when companies do this, although cynically you might easily be able to imagine why. But it does make it harder to truly track how a company is doing year on year.

On another note, net profit margin for HY2018 was: $11.7m /$166.7m = 7.0% (c.f. 8.9%for FY2017). This is well down and sets a new low for the company in recent years.

Annualised ROE for HY2018 was ($11.7m x2)/$163.090m = 14.4% (c.f. 11.8%for FY2017). This is a good improvement, tracking towards Buffett's 15% target.

Despite the headline NPAT figure being up, it looks like there are some very tough markets out there as regards profit margin. But of course we are only just starting. The new factories and production lines are ready, and once production approaches full capacity, just watch the ROE and net profit margin figures soar from here. Right fellow shareholders?

SNOOPY

[Filthy]

good detailed analysis as always snoop!



I was a little disappointed with this: "Future dividends are likely to carry only partial imputation (~60%) as the growth in earnings is largely coming from Skellerup’s international operations." the next divi carries full imp thou, so that’s all good. and going forward, a ~60% imp of a (potentially) growing divi sounds better than 100% fully imp of a flat one eh??


But of course we are only just starting. The new factories and production lines are ready, and once production approaches full capacity, just watch the ROE and net profit margin figures soar. yep - not to mention the new product development which should also help too eh! ;)




filthy

[Scrunch]

Losing part of the dividend imputation will be annoying. Perhaps they should consider flat dividends and a progressively increasing amount allocated towards share buybacks. Turn the dividend into capital growth and shareholders can decide to keep there holding unchanged or release cash by selling some shares. Disc holding.

[Snoopy]

good detailed analysis as always snoop!


the next divi carries full imp thou, so that’s all good. and going forward, a ~60% imp of a (potentially) growing divi sounds better than 100% fully imp of a flat one eh??


filthy


Losing part of the dividend imputation will be annoying. Perhaps they should consider flat dividends and a progressively increasing amount allocated towards share buybacks. Turn the dividend into capital growth and shareholders can decide to keep there holding unchanged or release cash by selling some shares. Disc holding.

While I agree with yours sentiments Scrunch, from an investment perspective, I often find that doing things for tax reasons only usually turns out badly :-(.

As filthy has said an increasing partly imputed dividend with an unimputed bit that is growing is better than a flat fully imputed dividend. I personally am happy with that (having been softened up by the Gentailers doing the same!). But I do think your suggestion has merit Scrunch, and would suggest it is worth bringing up at the next AGM.

SNOOPY

[RTM]

While I agree with yours sentiments Scrunch, from an investment perspective, I often find that doing things for tax reasons only usually turns out badly :-(.

As filthy has said an increasing partly imputed dividend with an unimputed bit that is growing is better than a flat fully imputed dividend. I personally am happy with that (having been softened up by the Gentailers doing the same!). But I do think your suggestion has merit Scrunch, and would suggest it is worth bringing up at the next AGM.

SNOOPY

I am more than happy to see the dividend increasing over time, even if it is unimputed.
Personally I am not at all keen on having to sell some of my shares, possibly an annoyingly small portion, to generate income equivalent to a dividend.

[Scrunch]

Interesting fact - If you select 4-traders filters of 5-stars on both the invester/trader rankings and market cap from $100-$1b (US) there are 302 companies globally that meet this criteria. SKL is currently one of these. Only 6 are from Oceania the other 5 being Villa World Ltd, Adairs Ltd, Synlait Milk Ltd, Kathmandu Holdings Ltd and Elders Ltd. If there are investors using 4-traders or similar screens for what stocks they invest in, SKL may appear on their radar screen.

[Snoopy]

I am more than happy to see the dividend increasing over time, even if it is unimputed.
Personally I am not at all keen on having to sell some of my shares, possibly an annoyingly small portion, to generate income equivalent to a dividend.


I agree that unless you have a pretty substantial holding, then selling a few shares in lieu of extra dividends is impractical. However the more normal sized shareholders could still benefit from a share buyback strategy without selling any shares. If SKL starts doing buybacks and cancelling those shares bought back, this means the same company income will be distributed over a smaller number of shares in the future. This means that even if profits are flat, earnings per share will increase. And that likely means higher dividends (per share) in the future for all remaining shareholders.

SNOOPY

[Ted2]

Surprised there's been no comment on SKL movement of late. Up 15c this month - which is absolutely stellar for SKL - that would be an annual movement in a rare good year! Any thoughts? Snoopy?

Not complaining - have been a long suffering holder!

[forest]

My thoughts are that the new factory is improving the efficiency of this company substantially.
The lower $NZ also helps.
1H2018 revenue up 20% and NPAT up 31%.
Not to shabby.

[janner]

Surprised there's been no comment on SKL movement of late. Up 15c this month - which is absolutely stellar for SKL - that would be an annual movement in a rare good year! Any thoughts? Snoopy?

Not complaining - have been a long suffering holder!


My purchase was October 2015.. Since then It has done 16% per annum.. Plus a not to be sneezed at dividend..


Disc. Happy holder..

[Snoopy]

Surprised there's been no comment on SKL movement of late. Up 15c this month - which is absolutely stellar for SKL - that would be an annual movement in a rare good year! Any thoughts? Snoopy?


SKL has been a sound albeit unfashionable company for a few years. Eventually fashions do come full circle.

There seems to be a fair bit of 'index inclusion' speculation these days. CBL must be due to fall from the NZX50 soon. So what will replace it?

Free float of Skellerup (taking out the Cushing stake) is:

192,805,807-15,773,826 = 177,031,981

Last market sale was $1.95, which gives a free float market capitalisation of:

$1.95 x 177,031,981 = $345.2m

Can anyone think of a likely NZX50 inclusion candidate that can beat this?

SNOOPY

[RTM]

Surprised there's been no comment on SKL movement of late. Up 15c this month - which is absolutely stellar for SKL - that would be an annual movement in a rare good year! Any thoughts? Snoopy?

Not complaining - have been a long suffering holder!

Yes....its a really boring share. My average buy 125. Nice dividend.
I really wish that all my shares were as boring as this.

[Schrodinger]

Depends on the CAGR....

[Soolaimon]

Yes....its a really boring share. My average buy 125. Nice dividend.
I really wish that all my shares were as boring as this.

Great retirement share. I have held since way back when it was Skellmax or even before that, can't remember. Think it was originally Para Rubber. The dividends over the years have long since repaid original outlay and then some. Happy to leave them in the bottom draw and collect the very good dividends.

[Schrodinger]

That maybe the case but you could have put it in another investment and earned a lot more. Looking at my CAGR it is 4.30% since 2012. Add 5% for div's and its barely acceptable (9% combined). Auckland housing is 3% (rent yield) and 10% cap gain since then (13%)?

[James108]

Nzx50 also returned roughly 9% over last 10 years. Guess SKL has been an average investment. Don’t think it is fair to compare to a completely different asset class, especially without taking into the costs of ownership.

[Filthy]

https://www.nzx.com/announcements/322305

Ooooo another very solid result!!!

I had to go back to 'page 7' to find this thread.

odd how this stock doesn't get much love considering its performance in the last few years!

looking forward to your analysis Snoopy! ;)

[Scrunch]

https://www.nzx.com/announcements/322305

Ooooo another very solid result!!!

I had to go back to 'page 7' to find this thread.

odd how this stock doesn't get much love considering its performance in the last few years!

looking forward to your analysis Snoopy! ;)

The cynical among us would say that they again missed their profit forecast. A range of $24.5 to $26.0m was given at half year and 27.3m is outside that range.

Also looking forward to snoops review.

Disc happy holder

[percy]

At a share price of $2.01 with eps of 14.1 cents the PE ratio is 14.25.

[RTM]

The cynical among us would say that they again missed their profit forecast. A range of $24.5 to $26.0m was given at half year and 27.3m is outside that range.

Also looking forward to snoops review.

Disc happy holder

Yes...happy holder as well. Seems to be good steady performance in all areas. As well as cost savings in new factory. Nice dividend increase so maybe I can buy some A2 milk for my Meuslei
Be interesting to see how they fare over the next year or three with global trade perhaps being somewhat disrupted.
Red Bands...yep...my wife has a pair...Birthday present.

[Balance]

At a share price of $2.01 with eps of 14.1 cents the PE ratio is 14.25.

80% of revenues from overseas - so a good play on the lower NZ$ too.

[BlackPeter]

80% of revenues from overseas - so a good play on the lower NZ$ too.

True. On the other hand, I assume that most of their raw materials come from overseas as well and need to be paid in USD. The exchange rate giveth and taketh ;):

[traineeinvestor]

A very nice result. I'm struggling to find anything I don't like about it - eps up, cash flow up, dps up, debt down, a qualified degree of optimism for the next FY.

[Balance]

A very nice result. I'm struggling to find anything I don't like about it - eps up, cash flow up, dps up, debt down, a qualified degree of optimism for the next FY.

Agree with you.

So much so I decided to put a few yesterday into my portfolio as a solid export and FX play.

[dodgy]

True. On the other hand, I assume that most of their raw materials come from overseas as well and need to be paid in USD. The exchange rate giveth and taketh ;):

Good morning BP and all,
Imports plus value added (incl. labour etc. ) = exports which in this case may add a very nice margin on cost.
Regards
-dodgy

[Balance]

Good morning BP and all,
Imports plus value added (incl. labour etc. ) = exports which in this case may add a very nice margin on cost.
Regards
-dodgy

That is indeed the essence of a successful export company.

Fully expect Skellerup to obtain big benefits from the drop in the NZ$, the rise of the US$ and see a few profit upgrades in the year ahead.

[Beagle]

Just a note of caution. Every year they have been optimistic about the year ahead. Out of four recent years I think they have been right just once. This company has a very chequered track record when it comes to meeting forecasts. Just because they did it once doesn't mean all credibility is restored and all previous sins and bad profit guidance miss's are forgotten. Anyone thinking the market might accord them anywhere near an average market PE should probably not hold their breath while waiting.9859 Five year comparison to the NZX50

[percy]

Yes we certainly were led up the garden path a few times.
Maybe it is different this time with Elizabeth Coutts as Chair.?
I was tempted on reading the result.

[janner]

Just a note of caution. Every year they have been optimistic about the year ahead. Out of four recent years I think they have been right just once. This company has a very chequered track record when it comes to meeting forecasts. Just because they did it once doesn't mean all credibility is restored and all previous sins and bad profit guidance miss's are forgotten. Anyone thinking the market might accord them anywhere near an average market PE should probably not hold their breath while waiting.9859 Five year comparison to the NZX50

Picked mine up late October 2015

Nothing to gripe about so far.. Good dividend with a steadily climbing share price.

[Balance]

Yes we certainly were led up the garden path a few times.
Maybe it is different this time with Elizabeth Coutts as Chair.?
I was tempted on reading the result.

Who knows? Being a diversified company, I guess it is not so easy to have all cylinders firing at the same time?

I am playing the export and NZ$ so am very comfortable of the outlook ahead for the nexzt couple of years.

[percy]

Who knows? Being a diversified company, I guess it is not so easy to have all cylinders firing at the same time?

I am playing the export and NZ$ so am very comfortable of the outlook ahead for the nexzt couple of years.

Yes certainly the export outlook was why I was keen on them.

[janner]

Who knows? Being a diversified company, I guess it is not so easy to have all cylinders firing at the same time?

I am playing the export and NZ$ so am very comfortable of the outlook ahead for the nexzt couple of years.

I get the impression they are slowly working their way into being a major player in the world dairy industry.

[Patient Panda]

Just a note of caution. Every year they have been optimistic about the year ahead. Out of four recent years I think they have been right just once. This company has a very chequered track record when it comes to meeting forecasts. Just because they did it once doesn't mean all credibility is restored and all previous sins and bad profit guidance miss's are forgotten. Anyone thinking the market might accord them anywhere near an average market PE should probably not hold their breath while waiting.9859 Five year comparison to the NZX50


I owned some SKL shares a few years ago. Glad to be done with them and learned a few lessons. Didn’t lose anything material, did enjoy the nice divvy but thinking about the opportunity cost and looking at that vicious chart, well...

not a great track record, don’t really own up to bad results and always opti,istic for future only to contradict themselves with the result. Maybe Liz Coutts will be an improvement over Selwyn.


Until they get some wins under their belt a PE of 14.7 looks very rich. Either BGR or TRA look much better value for people looking for great growing companies with strong divvies and great track records.

[janner]

I owned some SKL shares a few years ago. Glad to be done with them and learned a few lessons. Didn’t lose anything material, did enjoy the nice divvy but thinking about the opportunity cost and looking at that vicious chart, well...

not a great track record, don’t really own up to bad results and always opti,istic for future only to contradict themselves with the result. Maybe Liz Coutts will be an improvement over Selwyn.


Until they get some wins under their belt a PE of 14.7 looks very rich. Either BGR or TRA look much better value for people looking for great growing companies with strong divvies and great track records.

I can only refer you to my experience..

Purchased late October 2015. At about $1.39. Now about $2.10.. Producing a very reasonable dividend..

With in my opinion.... A niche market that they understand and are very capable of taking over..

[RTM]

I can only refer you to my experience..

Purchased late October 2015. At about $1.39. Now about $2.10.. Producing a very reasonable dividend..

With in my opinion.... A niche market that they understand and are very capable of taking over..

I’m about the same, a month or so earlier at about $1.25. In addition to above nice new factory to improve the efficiency of what they are making. I think this has earned a place in my portfolio, albeit at a low %, 2.44. Will consider adding if performance remains solid over next few years.

[Balance]

I’m about the same, a month or so earlier at about $1.25. In addition to above nice new factory to improve the efficiency of what they are making. I think this has earned a place in my portfolio, albeit at a low %, 2.44. Will consider adding if performance remains solid over next few years.

11c dividend on your $1.25 entry price - wish we all had more of those!

[Beagle]

11c dividend on your $1.25 entry price - wish we all had more of those!

Congrats to those that showed forbearance through the years of disappointments and multiple statements of optimism only one or two of which turned out to be correct.
Great that some want to blow their trumpet and fair enough, with that sort of perseverance.
More to the point though for current discussion is whether this company is a good buy now ? I don't think the company deserves any higher PE and possibly doesn't deserve the current one.
That won't stop brokers climbing on board and recommending it because, surprise, surprise, they love to change their opinion and generate brokerage !
My favorite saying springs to mind "Every dog has its day"

[Jantar]

….
More to the point though for current discussion is whether this company is a good buy now ? I don't think the company deserves any higher PE and possibly doesn't deserve the current one..... This comment made me look closer and test my own assumptions for a fair price. I am looking for good dividends and a reasonable growth, with a minimum return after tax of 5%. My average buy price for SKL after allowing for dividends already received is only $1.36.

My own take on that puts a value on SKL of around $2.10 so at the current price of $2.18 is a hold rather than a buy. If it climbs to $2.25 then I will probably take some profit.

[Patient Panda]

I can only refer you to my experience..

Purchased late October 2015. At about $1.39. Now about $2.10.. Producing a very reasonable dividend..

With in my opinion.... A niche market that they understand and are very capable of taking over..


My congratulations a very nice profit. I’m very glad I reallocated my SKL funds as they have certainly outperformed what I would have got had I left them alone.

Over the past few years the majority of shareprice gains have been made up of PE expansion rather than a business going gangbusters. Just something to keep in mind for future risk weighted returns.

[Beagle]

My congratulations a very nice profit. I’m very glad I reallocated my SKL funds as they have certainly outperformed what I would have got had I left them alone.

Over the past few years the majority of shareprice gains have been made up of PE expansion rather than a business going gangbusters. Just something to keep in mind for future risk weighted returns.

Very clever Panda. That's bang on the money. They forecasted $27m profit several years ago and then....oh dear, oh dear,...was it 3 or was it 4 poorly explained downgrades in one year ?

[traineeinvestor]

Another happy shareholder who purchased at the right time and has enjoyed decent dividends and modest share price appreciation over the last few years.

While noting the company's chequered track record of missed forecasts and sharing the reservations others have expressed about the valuation looking a little high, one of the things I continue to like about SKL is their capital management. They avoided both a capital raising and elevated debt levels when they were building their new facilities and they have demonstrated this again, delivering lower debt levels rather than higher inventory/working capital on the increase in turnover.

Even so, at current prices, I'm a holder rather than a buyer.

[Patient Panda]

Very clever Panda. That's bang on the money. They forecasted $27m profit several years ago and then....oh dear, oh dear,...was it 3 or was it 4 poorly explained downgrades in one year ?

Yes it was a good learning exercise!!

I have never owned a company besides SKL where guidence has been updated to the downside so many times.

They have a lot of exposure to highly cyclical industries and even if most segments are doing well the one bad apple can ruin the barrel. Not often you see two or three different Cyclical industries in sync and with favourable tailwinds.

if one wants an inconsistent performer with a much better divvy, cheaper fundamentals in a similar industry why not MPG? At 83cps looks like a steal compared to SKL. If they recover even a little bit they’ll enjoy a PE rerate similar to what SKL has gone through.

[Balance]

Very clever Panda. That's bang on the money. They forecasted $27m profit several years ago and then....oh dear, oh dear,...was it 3 or was it 4 poorly explained downgrades in one year ?

And that's why some were able to buy the stock at $1.25 - gee, I think that is how the market works?

[Beagle]

And that's why some were able to buy the stock at $1.25 - gee, I think that is how the market works?

I try and avoid buying dogs unless they have fur :p...but yes some punts pay off and even a flea ridden mangy dog barks now and again.

[Snow Leopard]

Lunch was actually Ayam Goreng dan Jus Mangga.

Selling out of a very definite uptrend is not something I would suggest anybody does lightly....

Wish I had kept them now :(

Still no good crying over spilt milk.

[Patient Panda]

And that's why some were able to buy the stock at $1.25 - gee, I think that is how the market works?


1.25 a great buy in price, gives you 40% margin of safety (which you absolutely need in this case) on fair value / graham number.

but its not 1.25 anymore is it

[Balance]

1.25 a great buy in price, gives you 40% margin of safety (which you absolutely need in this case) on fair value / graham number.

but its not 1.25 anymore is it

Exactly my point - it was $1.25 because of all the negative sentiment created by the downgrades. That's why it went down to that level for those with a more positive view to grab a bargain (as it is turning out as of now).

[RTM]

Exactly my point - it was $1.25 because of all the negative sentiment created by the downgrades. That's why it went down to that level for those with a more positive view to grab a bargain (as it is turning out as of now).

Additionally, even with the downgrades, the dividends at ~1.25 were still ok, around 8c per year. So the cost of having to hold for those of us as interested in dividends as capital gain was minimal.

[Snoopy]

2013: ($26.631-$0.871-$7.595)m/ 192.806m = 9.4cps
2014: ($29.202-$0.093-$8.458+$1.6)m/ 192.806m = 11.5cps
2015: ($30.956-$0.558-$9.023)m/ 192.806m = 11.1cps
2016: ($29.099+$0.800+$1.275-$8.429+0.28*$0.145)m /192.806m = 11.8cps
2017: ($31.435-$2.507-$9.300+0.28*$0.025)m /192.806m = 10.2cps

Notes:
a/ Results for all years have had foreign exchange currency gains removed. Foreign currency gains (or losses) are not a measure of operational business performance.
b/ Result for FY2014 adds back a $1.6m long standing warranty dispute adjustment.
c/ Result for FY2016 adds back $800,000 in restructuring costs.
d/ Result for FY2017/FY2016 adjusts for not including a $25,000/$145,000 cost from relocation expenses respectively, by adding back the 'after tax' effect of not having incurred these costs.

Conclusion: Fail test



2014: ($29.202-$0.093-$8.458+$1.6)m/ 192.806m = 11.5cps
2015: ($30.956-$0.558-$9.023)m/ 192.806m = 11.1cps
2016: ($29.099+$0.800+$1.275-$8.429+0.28*$0.145)m /192.806m = 11.8cps
2017: ($31.435-$2.507-$9.300+0.28*$0.025)m /192.806m = 10.2cps
2018: ($37.918-$1.123-$10.641)m /192.806m = 13.7cps

Notes:
a/ Results for all years have had foreign exchange currency gains removed. Foreign currency gains (or losses) are not a measure of operational business performance.
b/ Result for FY2014 adds back a $1.6m long standing warranty dispute adjustment.
c/ Result for FY2016 adds back $800,000 in restructuring costs.
d/ Result for FY2017/FY2016 adjusts for not including a $25,000/$145,000 cost from relocation expenses respectively, by adding back the 'after tax' effect of not having incurred these costs.

Conclusion: Fail test

SNOOPY

[Snoopy]

2013: $18.165m /$124.673m= 14.6%
2014: $22.251m /$144.691m= 15.4%
2015: $21.375m /$159.660m= 13.3%
2016: $22.786m /$155.855m= 14.6%
2017: $19.635m /$159.247m= 12.3%

Conclusion: Fail test



2014: $22.251m /$144.691m= 15.4%
2015: $21.375m /$159.660m= 13.3%
2016: $22.786m /$155.855m= 14.6%
2017: $19.635m /$159.247m= 12.3%
2018: $26.154m /$172.286m= 15.2%

Conclusion: Fail test

SNOOPY

[Snoopy]

2013: $18.165m /$189.496m= 9.6%
2014: $22.251m /$196.606m= 11.3%
2015: $21.375m /$203.011m = 10.7%
2016: $22.786m /$211.415m= 10.8%
2017: $19.635m /$210.232m= 9.3%

After a grudgingly but nevertheless slowly persuasive increase in net profit margin in recent years, FY2017 has reversed all the good work. The last time profit margins were this low was in FY2010! I guess shareholders will have to hope that FY2017 was a rogue transition year?

Conclusion: Fail test


2014: $22.251m /$196.606m= 11.3%
2015: $21.375m /$203.011m = 10.7%
2016: $22.786m /$211.415m= 10.8%
2017: $19.635m /$210.232m= 9.3%
2018: $26.154m/$240.408m= 10.9%

I see a 'steady margin' picture with a low year of FY2017 offset by a higher year in FY2014

Conclusion: Fail test

SNOOPY

[Snoopy]

From being in a position to pass 'all four' of the Buffett growth tests, the FY2017 Skellerup only passes one! The biggest surprise, and one that was not evident from a casual read of the published earnings was the very significant $2.507m foreign currency gain that made the headline FY2017 result look a lot better ( 'above guidance' [sic] ) than it really was. Of course this doesn't mean that SKL has necessarily become a dud investment. It just means that the 'Buffett Growth Model' will likely prove unreliable as a predictor, so a different valuation technique is required.

I refer readers to my post 614, using an alternative valuation technique, the 'Capitalised Dividend Valuation Method', based on an FY2017 perspective. I quote from the end of that post:

-----

Now using my plus and minus 20% range to get a feel how the SKL share price might behave at the top and bottom of its business cycle.

Top of Business Cycle Valuation: $1.59 x 1.2 = $1.91
Bottom of Business Cycle Valuation: $1.59 x 0.8 = $1.27

------

At $1.71 (the Friday close) and just ex a 6c dividend, I would regard SKL as 'ever so slightly overvalued', but still well within fair valuation bounds. I am a long term holder and consequently won't be either buying or selling based on any revelations from the results of the FY2017 financial year.


I open this post with a couple of quotes from the Panda which I think are both poignant and sobering.



Over the past few years the majority of shareprice gains have been made up of PE expansion rather than a business going gangbusters. Just something to keep in mind for future risk weighted returns.


The historic PE at 30-09-2015 was 11.6. Three years later and it is 15.6 (both with my adjustments).



not a great track record, don’t really own up to bad results and always optimistic for future only to contradict themselves with the result. Maybe Liz Coutts will be an improvement over Selwyn.

Until they get some wins under their belt a PE of 14.7 looks very rich.


One good result does not a trend make. The result was good but, as an investor, the likes of Buffett must always consider the multi year perspective. The performance of Skellerup isn't consistent enough to apply the Buffett multi year growth model reliably. This doesn't mean it isn't a good investment. It just means we can't use a technique like Buffett might use to value it.

SNOOPY

[Snoopy]

I have updated my valuation using the latest five years of 'rolling data'. It is always a bit of a judgement call doing this. I have to ask myself if the data from FY2012 is still representative. In the case of PGW (as worked through on the PGW thread) I would say 'yes'. In the case of SKL I would say 'no'. I think the SKL growth plan is well enough bedded in to suggest that dividends will not regress to FY2012 levels. So what does dropping the FY2012 dividend payments and adding the FY2017 dividend payments do for my valuation?



YearDividendsDividend Total


20135.0c+3.0c8.0c


20145.0c+3.5c8.5c


20155.0c+3.5c8.5c


20165.5c+3.5c9.0c


20175.5c+3.5c9.0c


Total43.0c



Averaged over 5 years, the dividend works out at 43.0/5 = 8.6c (fully imputed).

So based on a 7.5% gross yield, 'fair value' for SKL is:

8.6 / (0.075 x 0.72) = $1.59

Now using my plus and minus 20% range to get a feel how the SKL share price might behave at the top and bottom of its business cycle.

Top of Busines Cycle Valuation: $1.59 x 1.2 = $1.91
Bottom of Busines Cycle Valuation: $1.59 x 0.8 = $1.27

At close to $1.50, I would put SKL as a reasonable 'accumulate' proposition, particularly as it is still cum the 3.5c dividend up until March 10th.


I have updated my valuation using the latest five years of 'rolling data'. Since we know the first dividend to be paid in FY2019 (which is the FY2018 final dividend) I have used that 'latest information' and dropped the first dividend paid in FY2014 from my five years of rolling data. However that dividend will for the first time not be fully imputed (55% imputed only). So the equivalent gross figure can be worked out as follows:

7.0c (55% imputed) = 3.85c (FI) + 3.15c (NI) = 3.85c/0.72 +3.15c = 5.35c +3.15c = 8.50c (gross dividend) (A)



YearDividendsDividend Total


20145.0c+3.5c3.5c


20155.0c+3.5c8.5c


20165.5c+3.5c9.0c


20175.5c+3.5c9.0c


20186.0c+4.0c10.0c


20197.0c+?.?c



Total40.0c



This gives a cumulative gross dividend of 40.0c/0.72 = 55.6c

We need to add to this the first dividend to be paid in FY2019 (A), expressed as a gross dividend:

55.6c + 8.5c = 64.1c

Averaged over 5 years, the dividend works out at 64.1/5 = 12.8c (fully imputed).

So based on a 7.5% gross yield, 'fair value' for SKL is:

12.8 / (0.075) = $1.71

Now using my plus and minus 20% range to get a feel how the SKL share price might behave at the top and bottom of its business cycle.

Top of Busines Cycle Valuation: $1.71 x 1.2 = $2.05
Bottom of Busines Cycle Valuation: $1.59 x 0.8 = $1.37

At this part of the investment cycle, with conditions very favourable towards shares, I would argue that for SKL shares to be trading at $2.05 (the upper end of my expected range) would not be unusual. The fact they are trading above this at $2.15, suggests to me there is a growth premium built into the share price. What we have here is investors willing to pay a growth premium which from an historical perspective is not justified. Of course if the growth targets the company has set itself materialise, SKL could well be worth $2.15. I am a shareholder and have done very nicely out of SKL over the last few years. But I won't be topping up at $2.15. Good company. But for me the risk/reward equation does not stack up to be 'market outperforming' from here. Nevertheless I will be sticking with all my shares for now. Although I see them as 'overvalued', they are no more overvalued in my judgement than many shares in the market today.

SNOOPY

[Aaron]

Thanks Snoopy

[RTM]

Some good news. I hope these guys do really really well with their options.
In fact I hope they are worth $1,000,000 to DM.

SKL
24/10/2018 12:44
MKTUPDTE
PRICE SENSITIVE
REL: 1244 HRS Skellerup Holdings Limited

MKTUPDTE: SKL: Skellerup reports strong start to FY19

Speaking ahead of today's Annual Shareholders' Meeting, Skellerup Chair Liz
Coutts said trading for Q1 of the current year generated EBIT in excess of
10% ahead of the comparable quarter in the prior year.

Mrs Coutts said "We expect an improvement in profitability in FY19 with
increased earnings in our Industrial Division offsetting the recent softening
in international dairy markets and the uncertainty surrounding international
trade."

Skellerup also announced the introduction of a long-term incentive plan under
which share options will initially be issued to David Mair and Graham Leaming
(CFO) on 26 October 2018. Share options will be priced at the 20-day volume
weighted market price for the period 27 September to 25 October 2018. One
million (1,000,000) share options will be granted to Mair; Six hundred
thousand (600,000) share options will be granted to Leaming. The share
options will have a 2-year vesting period.

For further information please contact:

David Mair
Chief Executive Officer
021 708 021

[winner69]

Skellerup still powering ahead

Full year profit guidance 10% or there abouts more than last year

Snoops, Blackpeter et all will be pleased

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SKL/330554/294886.pdf

[RTM]

Skellerup still powering ahead

Full year profit guidance 10% or there abouts more than last year

Snoops, Blackpeter et all will be pleased

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SKL/330554/294886.pdf

Yes...great to see. Nice jump in the dividend as well. I like manufacturing companies doing well, gotta be better for NZ Inc than building more facilities for retirement. Great news.

[percy]

An excellent result.

[macduffy]

Another of my long keepers doing well!

:)

[Snoopy]

I have updated my valuation using the latest five years of 'rolling data'. Since we know the first dividend to be paid in FY2019 (which is the FY2018 final dividend) I have used that 'latest information' and dropped the first dividend paid in FY2014 from my five years of rolling data. However that dividend will for the first time not be fully imputed (55% imputed only). So the equivalent gross figure can be worked out as follows:

7.0c (55% imputed) = 3.85c (FI) + 3.15c (NI) = 3.85c/0.72 +3.15c = 5.35c +3.15c = 8.50c (gross dividend) (A)



YearDividendsDividend Total


20145.0c+3.5c3.5c


20155.0c+3.5c8.5c


20165.5c+3.5c9.0c


20175.5c+3.5c9.0c


20186.0c+4.0c10.0c


FY20197.0c+?.?c


Total40.0c



This gives a cumulative gross dividend of 40.0c/0.72 = 55.6c

We need to add to this the first dividend to be paid in FY2019 (A), expressed as a gross dividend:

55.6c + 8.5c = 64.1c

Averaged over 5 years, the dividend works out at 64.1/5 = 12.8c (fully imputed).

So based on a 7.5% gross yield, 'fair value' for SKL is:

12.8 / (0.075) = $1.71

Now using my plus and minus 20% range to get a feel how the SKL share price might behave at the top and bottom of its business cycle.

Top of Busines Cycle Valuation: $1.71 x 1.2 = $2.05
Bottom of Busines Cycle Valuation: $1.59 x 0.8 = $1.37

At this part of the investment cycle, with conditions very favourable towards shares, I would argue that for SKL shares to be trading at $2.05 (the upper end of my expected range) would not be unusual. The fact they are trading above this at $2.15, suggests to me there is a growth premium built into the share price. What we have here is investors willing to pay a growth premium which from an historical perspective is not justified. Of course if the growth targets the company has set itself materialise, SKL could well be worth $2.15. I am a shareholder and have done very nicely out of SKL over the last few years. But I won't be topping up at $2.15. Good company. But for me the risk/reward equation does not stack up to be 'market outperforming' from here. Nevertheless I will be sticking with all my shares for now. Although I see them as 'overvalued', they are no more overvalued in my judgement than many shares in the market today.


I have updated my valuation using the latest five years of 'rolling data'. FY2019 has been the first year that dividends have not been fully imputed. Granted, the dividends have been increased, which means that dividend hungry shareholders are not worse off. And the reason for not fully imputing those dividends, because of the outperformance success of Skellerup's overseas subsidiaries that do not generate earnings in NZ Dollars, is hardly a negative. Although detractors might say Skellerup should be doing more of their manufacturing in New Zealand. Given the escalation in global trade tensions, I think being geographically diversified with your manufacturing plants is probably a good idea. Even if, unlike Scott Technology (as another example of a NZ based, but internationally spread exporter), the overseas manufacturing facilities are not multipurpose. Skellerup can't choose in which overseas plant they manufacture their widgets!

The calculations to work out the equivalent gross figure for FY2019's unimputed dividends, those paid in the FY2019 financial year, are as follows:

7.0c (55% imputed) = 3.85c (FI) + 3.15c (NI) = 3.85c/0.72 +3.15c = 5.35c +3.15c = 8.50c (gross dividend)

5.5c (50% imputed) = 2.75c (FI) + 2.75c (NI) = 2.75c/0.72 +2.75c = 3.82c +2.75c = 6.57c (gross dividend)





Year
Dividends as DeclaredGross DividendsGross Dividend Total


FY20155.0c+3.5c
6.94c + 4.86c11.80c


FY20165.5c+3.5c
7.64c + 4.86c12.50c


FY20175.5c+3.5c
7.64c + 4.86c
12.50c


FY20186.0c+4.0c8.33c + 5.56c
13.89c


FY20197.0c (55% I) +5.5c (50% I) 8.50c +6.57c
15.07c


Total65.76c




Averaged over 5 years, the dividend works out at 65.76/5 = 13.1c (gross dividend).

So based on a 7.5% gross yield, 'fair value' for SKL is:

13.1 / (0.075) = $1.75

Now using my plus and minus 20% range to get a feel how the SKL share price might behave at the top and bottom of its business cycle.

Top of Busines Cycle Valuation: $1.75 x 1.2 = $2.10
Bottom of Busines Cycle Valuation: $1.75 x 0.8 = $1.40

At this part of the investment cycle, with conditions very favourable towards shares, I would argue that SKL shares trading at $2.10 (the upper end of my expected range) would not be unusual. The fact they are trading at $2.14, just before a 5.5c dividend is paid, puts them within the top bound of my expected trading range on an ex dividend basis. The 'growth premium' from the half year has gone. From an historical perspective I believe this is justified. Skellerup have yet to earn their 'consistent growth stripes'.

Skellerup's underlying performance has caught up with their market valuation. I felt a touch of pride when I read about the 40 Maserati Quattroporte limousines bought for the Port Moresby APEC conference (the ones that Jacinda refused to ride in), knowing that each one had a Skellerup drive coupling faithfully transmitting all that 'torque' below the floor, while our leaders 'talked' above. But is such growth in the PNG market sustainable?

I have done very nicely out of SKL over the last three to four years. My average purchase price is $1.30. But I won't be topping up at $2.14. Good company. But for me the risk/reward equation is not proven to be 'market outperforming' from here. Lots could go right and lots could go wrong. But I have faith in the direction of management and governance. When I saw the photo of Chairman Liz Coutts in the HY2019 inside cover, I thought she had a touch of the wise look of the late great Stephen Hawking about her. And that can't be a bad thing for a science lead company!

SNOOPY

[RTM]

Appreciate the commentary Snoopy, my average buy is a few cents less than yours.
Neither buying or selling at current level, would like a few more tho if the price does drop at some stage.

[Snoopy]

Nothing I have done so far has confirmed the case for investment in Skellerup. A excellent company can still be a lousy investment if the price you pay for access is too high. So is the price for Skellerup today on the market too high? To answer that I plug the numbers into the Buffett style ten year growth model.

For this model I am using an ROE of 17.8% (the actual average of the last 9 years) and a dividend payout ratio of 62% (the actual dividend payout of the last 9 years).



SOFY


FYAsset BackingEarningsDividendRetained Earnings


20130.630.0940.0800.014


20140.650.1150.0850.030


20150.750.1340.0830.051


20160.800.1430.0880.054


20170.850.1520.0940.058


20180.910.1620.1010.062


20190.970.1730.1080.066


20201.040.1850.1150.070


20211.110.1980.1230.075


20221.190.2110.1310.080


20231.270.2250.1400.086


20241.350.2410.1490.091


20251.440.257


Total1.13=align:right



With a 2025 year earnings of 25.7cps and using a PE of 12.6 (actual average over the last 9 years) the expected share price for Skellerup in ten years time is:

12.6 x 0.257 = $3.24

The dividend return over that time is $1.13 (as per above table)

Using a market share price today of $1.39, the expected compounding annual return 'i' can be calculated from the following equation.

$1.39(1+i)^10 = (3.24 +1.23) => i=12.1%

This return is a net return, before imputation credits. I haven't seen anywhere else on the NZX I can get a return so strong for so long. So for me investment in SKL at under $1.39 is a no brainer.




Appreciate the commentary Snoopy, my average buy is a few cents less than yours.
Neither buying or selling at current level, would like a few more tho if the price does drop at some stage.


It is interesting to look back on past predictions, and in particular the one above that I drew up four years ago. Yes I did consider this valuation 'invalid' a year later (because of a deterioration in business metrics) , but did not and still do not consider in invalid at the time I did it.

My prediction back then was earnings per shares of 17.3 for FY2019. Based on my modelled PE at the time of 12.3, this implies a projected share price today of:

17.3 x 12.3 = $2.18

My forecast gross dividend was 10,1c/0.72 = 14cps. The actual gross dividend paid over the year was 15cps.

At the half year result, CEO David Mair is predicting a net profit of $29m to $31m. Based on 192.806m shares on issue that equates to 15-16eps. With the shares currently trading at $2.14, this represents a FY2019 PE ratio of 13-14.

My share price prediction from four years ago was high, but only 2% high. If I was going to make an error it would be in that direction after I subsequently decided in 2016 that business conditions had deteriorated. For some who think it is impossible to forecast a share price four years into the future this is an extraordinary result. I prefer to think of it as vindication of what is a powerful valuation technique.

SNOOPY

[RTM]

Details of transactions and events giving rise to relevant event
http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SKL/332705/297648.pdf


“Details of the transactions or other events requiring disclosure:
From 21 August 2018 to 28 March 2019, ACC had the following aggregated on-market
transactions in Skellerup Holdings Ltd:
• Purchases of 2,739,690 shares for consideration of NZD $5,682,591.69
• Sales of 559,206 shares for consideration of NZD $1,164,231.98 “

Good to see ACC shareholding go up. Can anyone explain this to me tho,
Why are there purchases and sales ?
Given they were already >5%.... why can they make a
declaration in March 19 for Aug 18 to Mar 19 ?

[winner69]

Details of transactions and events giving rise to relevant event
http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SKL/332705/297648.pdf


“Details of the transactions or other events requiring disclosure:
From 21 August 2018 to 28 March 2019, ACC had the following aggregated on-market
transactions in Skellerup Holdings Ltd:
• Purchases of 2,739,690 shares for consideration of NZD $5,682,591.69
• Sales of 559,206 shares for consideration of NZD $1,164,231.98 “

Good to see ACC shareholding go up. Can anyone explain this to me tho,
Why are there purchases and sales ?
Given they were already >5%.... why can they make a
declaration in March 19 for Aug 18 to Mar 19 ?


Only need to disclose when they have a movement of 1% or more in their holding


On 21 August they had 5.465% and even though buying and selling since then they never went over 6.465% or under 5.000% (when they would have disclosed ceasing to be a SSH)


Obviously on March 28th they must have purchased enough to to go over that 6.465% so had to tell us


They probably have bough and sold and many days in this period ....would be a bit nonsensical to disclose every trade so the powers to be decided 1% movements would be enough


Clear as mud?

[RTM]

Thanks. Yes, that’s clear and makes sense.
Appreciated.

[Snoopy]

The acquisition of Australian company Deks in 2003 made Skellerup one of the largest producers of the rubber components of roof flashings in the world, he said. In the 2007 year its revenues would hit about $18.5 million.

Technical rubber product maker Gulf Rubber, bought for $32 million in January 2006, had targeted revenues of $35 million.


Skellerup still in the long game of buying up niche companies with a connection to rubber products. The Nexus acquisition today looks to be a good fit with Skellerup company culture.

https://www.nexusfoams.com/

Purchase price of $6.5m might imply sales levels of a similar amount?

"Our dedicated manufacturing facility in Auckland’s Highbrook Technology Estate allows us to represent leading flexible foam brands from around the world and design, prototype and manufacture new components. At the same time, our sites in East Tamaki (Auckland) and Christchurch add to our expanding network, which currently employs 37 staff and is growing."

"We export around the world to markets like Asia, Australia and the United States – with our eye also on new opportunities overseas."

With revenue of last year at $240m, an extra $6.5m is not a game changer. But as a shareholder I am happy with the purchase. I particularly like the 'earnings accretive' immediately bit.

SNOOPY

[percy]

Appreciate the commentary Snoopy, my average buy is a few cents less than yours.
Neither buying or selling at current level, would like a few more tho if the price does drop at some stage.

Get ready for the big price fall,as I brought in yesterday at $2.19.!!

[RTM]

Get ready for the big price fall,as I brought in yesterday at $2.19.!!
Welcome aboard. Hopefully you bought enough to support the share price for a couple of weeks.

[percy]

Welcome aboard. Hopefully you bought enough to support the share price for a couple of weeks.

More like half an hour.!!!

[Biscuit]

Get ready for the big price fall,as I brought in yesterday at $2.19.!!

I've been buying on dips since 2012, so am hoping you are right about the effect of your entry. Is there any particular reason attracting you to SKL currently?

[percy]

I've been buying on dips since 2012, so am hoping you are right about the effect of your entry. Is there any particular reason attracting you to SKL currently?

A few reasons.
The company seems to be well focussed.
Adding good bolt on acquistions.
I like the chair.Funny same chair as the company I sold to buy SKL,OCA,.Liz Coutts.
The pick up in the Australian mining sector should benefit SKL.
Little debt.
Growing dividend.FY 18...11cps......FY 19...13cps......FY 20....14cps....[according to Craigs]
Revenue mainly offshore, which is positive should the NZ low interest rate enviroment lead to a lower NZ $.

[Biscuit]

A few reasons.
The company seems to be well focussed.
Adding good bolt on acquistions.
I like the chair.Funny same chair as the company I sold to buy SKL,OCA,.Liz Coutts.
The pick up in the Australian mining sector should benefit SKL.
Little debt.
Growing dividend.FY 18...11cps......FY 19...13cps......FY 20....14cps....[according to Craigs]
Revenue mainly offshore, which is positive should the NZ low interest rate enviroment lead to a lower NZ $.


Thanks for your view, maybe I should add some more. I nearly added some a couple of days ago but thought they were looking a bit strong and the price might drop back a bit. They have certainly picked up their game in recent years, were going backwards for quite a while, or static at best.

[percy]

We are doing well Skellers.
Share price now $2.25.
Been good volume the past two days.

[BeeBop]

I bought back in at the start of January all based on their forward looking plans...even looking backwards the numbers are fine but forwards it looks like they have a future. They had better continue upwards as they are my NZ conviction stock. And if they slip in the short-term there is always the dividend.

[percy]

Another good day up 3 cents to $2.29.