great weather down here in the mainland,
I mean great for the sales of red bands.
this stock stays out of the headlines but has been a solid addition for me, buying wee parcels over the past 12 months
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great weather down here in the mainland,
I mean great for the sales of red bands.
this stock stays out of the headlines but has been a solid addition for me, buying wee parcels over the past 12 months
One of the best for me, I think we will see $5 in the near future.
Good management, good products, good exposure, good dividends.
Steady performer of late.
Happy holder
One of the best for me, I think we will see $5 in the near future.
Good management, good products, good exposure, good dividends.
Steady performer of late.
Happy holder
One of the best for me, I think we will see $5 in the near future.
Good management, good products, good exposure, good dividends.
Steady performer of late.
Happy holder
That didn't take long. Closed at $5.
Sorry for duplicate posts.
Yes....for me as well.6% of my portfolio on top of a >200% increase. So good that I have got my darling a pair of Red-Bands which she used to mow the lawns today. Happy days. Graph of last couple of years impressive.
In fact looking at my Portfolio...all my S's are great, maybe that's my new investment rule:
SEK, SKL, SKO SKT SPK STU (thanks Rob) and SUM.
That must be up there with the Couta (or was it Beagle's) law of relativity with RYM:SUM ). Sky (thanks Mr T) has the added advantage that one can cancel ones subscription and simply follow the antics of Mr T and Ogg. on the Share Trader thread.Attachment 12685
Some other posters old wives tale theory has been well and truly debunked.
SKL has had a nice upwards run there .. the question is how much further on current dividend / earnings ? ;)
A cushion from potential Covid symptons that other SP's have experienced must surely have it's northern limits
or maybe not for a while .. ;)
Interesting the market sees 5 bucks while Snoop's fair value at end May was in the 2 to 2 1/2 range .. ;)
My post 999 suggests an appropriate value, with takeover premium included of $2.14 to $2.53. This was based on the 'Northington Partners Report' (maybe a warning sign there?) into JBS Australia taking a controlling stake in Scott technology at the end of 2015.
Looking again at that Northington report, and cross checking their valuation, mention was made of the difficulty of doing a discounted cashflow analysis because of the lumpy nature of a small number of large future projects. That limitation would not apply to SKL.
Page 31 of that report shows that an alternative valuation procedure the assessed value range of 0.65 to 0.73 times 'Enterprise Value' / 'Forward Revenue Multiples', which includes a premium for control, shows that valuation range to be well short of 'NZ Manufacturing Listed Companies' 'EV/ Future Revenue' ratio normal market value of 0.8. That figure blows out to 1.1 when adjusted to reflect transactions for control given an international benchmark.
Skellerup is very much an international company now. So I think this report is saying, from an alternative viewpoint, that a fair takeover premium share price for Skellerup would be:
($2.14 to $2.53) x (1.1 / ((0.65 + 0.73)/2)) = $3.41 to $4.03
This is well below yesterdays high of $5. But $5 is based on an historical PE ratio of 27. This is nearly double the historical long term PE ratio of 15.6 (my post 923), the actual average over the previous five years. Thus we can see the current new highs of SKL are driven almost entirely by 'PE multiple expansion'. And such 'PE expansion' is something that the actual earnings growth performance of SKL does not justify (in my view).
SNOOPY
discl: Holding SKL, but not selling down due to a lack of alternative investment options at a decent price.
Great performing share this one. As we head to their result day in 10 more days.
I guess for the positive a wonderful increase in the dividend and a great forecast for FY22, or we might get a FY22 downgrade due to the lack of shipping containers impacting their materials getting to them, so it might go up higher or drop like a lead balloon, back to the $4 mark (not banking on that).
Im ok with that as I would top up if they got that low again. Right now I'm sitting on the sideline with my modest holding.
Revenue and operating gains drive record Skellerup NPAT - NZX, New Zealand’s Exchange
Revenue and operating gains drive record Skellerup NPAT
19/8/2021, 8:30 amFLLYRSkellerup today announced record audited net profit after tax of $40.2 million for the year ended 30 June 2021, a 38% increase over the previous record result.
Highlights for the year ending 30 June 2021
· Strategy and business model continuing to deliver substantial growth in earnings and returns to shareholders.
· Revenue of $279.5 million, up 11% on prior comparative period (pcp).
· Earnings before interest and tax (EBIT) of $56.4 million, up 33% on pcp.
o Industrial Division EBIT of $32.7 million, up 57% on pcp.
o Agri Division EBIT of $30.5 million, up 20% on pcp.
· Net profit after tax (NPAT) of $40.2 million, up 38% on pcp.
· Operating cash flow of $58.8 million, up 22% on pcp.
· Net debt of $8.7 million, down $19.8 million on pcp.
· Final dividend of 10.5 cps (50% imputed) bringing the total FY21 dividend to 17.0 cps (50% imputed) for the full year, up 31% on pcp.
Skellerup CEO, David Mair said the overall growth in earnings was the outcome of continuing to focus on working closely with key customers to provide engineered products used in a range of critical applications people interface with every day. “Skellerup’s products are critical to the supply of safe potable (drinkable) water; the production of milk and milk products; the performance of appliances in homes and workplaces; health and hygiene in hospitals, shops and homes; the safety and comfort of sporting and leisure equipment; and the integrity of roofing systems on homes and workplaces.”
Mair highlighted that Skellerup was focused on delivering growing and sustainable financial returns. “We invest in our people to develop better and more efficient ways of designing and manufacturing products. We design products and review processes to reduce waste and increase the efficiency of materials and energy used. We are proud to support the communities where we operate. The ongoing Covid-19 pandemic has created significant challenges and changes for our teams around the world. They have embraced these opportunities and delivered improved financial returns, better environmental outcomes including reduced water consumption and packaging waste and more efficient energy usage while keeping our workplaces safe.”
Industrial Division EBIT was $32.7 million, a record result and up 57% on pcp. Revenue was $177.3 million up 12% on pcp. Mair said revenue growth was broad based across the Division’s product range and markets.
“During FY21 we achieved growth in our largest US and Australian markets. Our capability to change our product formulations to meet increasingly demanding standards and combine materials to deliver valuable solutions to our key customers has been – and will remain – key to our ongoing growth. Most notably in FY21 roofing and construction products and U-DEK marine foam achieved
significant growth and stronger demand for potable water products was apparent in the second half of the year.”
Agri Division EBIT was $30.5 million, a record result and up 20% on pcp. Revenue was $102.2 million up 9% on pcp. Mair said the result again underscored the importance of the essential dairy consumables products that Skellerup design, manufacture and sell globally.
“Skellerup is the second largest manufacturer of food grade dairy rubberware in the world. The US and NZ remain our largest markets, but Europe and Asia were the fastest growing in FY21. We were able to meet the increased demand by improving our business processes and productivity with limited capital investment. FY21 also included a full year contribution from Silclear (acquired in November 2019) compared to the eight-month contribution in the pcp. Footwear sales were also up lead by the Red Band gumboot; the quality and durability of this product is synonymous with NZ farming and sales continue to grow in urban markets.”
Chair Liz Coutts noted that NPAT was a key financial measure, but equally operating cash flow was a critical performance measure to ensure the firm had the capacity to continue to fund growth.
“In FY21, we achieved a record operating cash flow of $58.8 million – up 22 per cent on the prior record achieved in FY20. This enabled us to fund our capital expenditure requirements, reduce debt and substantially lift our final dividend. We have a robust Balance Sheet with very low debt providing the platform and opportunity for continued investment in growth.”
Coutts advised that the final dividend would increase from 7.5 to 10.5 cents per share (50% imputed as in the pcp) to be paid to shareholders on 15 October 2021 with record date of 01 October 2021. This will bring the total dividend pay-out for the financial year ended 30 June 2021 to 17.0 cents per share up 31% on pcp.
“We are very pleased to reward shareholders in Skellerup. Over the past 10 years the pay-out has almost trebled. This demonstrates Skellerup’s strong cash flow and the Board’s practice of paying out a consistently high proportion of earnings,” Coutts said.
Coutts said the Group has started strongly in FY22 and she looked forward to updating shareholders further at the Annual Meeting on 27 October 2021.
For further information please contact:
Well done holders. Great result.
Another very happy shareholder.
Assuming the continue to pay down debt, SKL should have (or be close to) net cash by the time the current half year finishes. Assuming they don't spend it on acquisitions, I would not be surprised to see some form of capital management initiative.
Nice result. I like it. :)
Excellent! SKL results get better and better!
:)
Yep, quite nice result and very healthy financial indicators. RoE of 20.5% in combination with a quite low liabilities to asset ratio (31.1%) is certainly something to be proud of.
Clearly - currently running full power with all the industries they are selling into going full speed. They used to be however a quite cyclical business, will be interesting to see, whether this is something which changed long term.
Still remember times when dairy as well as the building industry did a lot of stuttering ... and the SKL share was on sale for something like 47 cents (I think).
Return on Invested Capital (which includes borrowing) was 18.3% - way above whatever cost of capital you want to use, 7% to 10%
True (and consistent) creator of economic wealth
Deserves to have a Market Value Added of $4.41 (Market Cap less Equity)
Not that many NZX companies performing like this
Excellent result, again. One looks back at a considerable top up at 47cents to the shares that I have held for many years and the returns are considerable. Probably the best long term hold I have held. I remember Nuplex, another successful manufacturing company performing in a similar fashion back then and they were eventually taken over by a big international player. I just hope that does not happen here ??
Whilst there has been growth per se the majority of the added value has come from greater productivity (ie margin etc)
let's just follow the smart money .. bound to be opportunity to share a small bit of their pavlova .. ;)
https://www.nzx.com/announcements/377599
They keep going full steam ahead
Not a lot to not like about SKL .. the quiet consistent performer, getting on with business
& doing it well through the thick & thin too :)
$9.5 million in turnover. Quite high even for this share
Sensational performance. If I wasn't so focused on staying on capital account might be tempted to take some off the table. I see the current SP is nearly 70c above Craigs TP (who forecast for mid 3% net dividend yields hereafter) while jarden a bit more bullish with a TP slightly higher than the current SP (with net yields forecast to increase into +4% by FY23). Other than knowing its a great company probably need to do more research to find out how sustainable its growth is before making a call.
Share price hasn't moved much since the 5% or so increase after their FY21 announcement. wonder if they can sustain their growth. With current lockdowns, all construction is stopped.
Share price really going for it today, all time high by some margin. Anyone know why?
best looking chart possible... now MR P high lighted that several years ago....next crash buy the farm that and the freights.
A bit of defence stock maybe?.. sought after with China debacle going on…
Doesn't hurt that Jarden upgraded SKL to Buy with an increased price target this week.
Disclosure: held
Thanks for this information TI and FM, I'm up > 260% on this one, its my third biggest holding and had been wondering about reducing a bit as I am pretty unsure what is driving this increase. Will probably just continue to hold I think ....at this stage.
MR P picked this stock several years ago.
One thing is that an investor can always find a reason to buy and to sell. Every good company is rewarded or like a good athlete or race horse they will always have conditions in which they out perform the field.
Always worth following the smart money to turn pennies into pounds - Yes Sir :)
they're not resident on the share register for no reason ;)
very impressive isn't it.
November 2016 NZX announcement
"Skellerup Chairman Sir Selwyn Cushing, speaking ahead of the opening of the $60 million, 19,000 square metre facility, Sir Selwyn said the move to a purpose-built, integrated site would help Skellerup cement its reputation as the world’s leading designer and manufacturer of food grade rubberware for the global dairy industry, and to further expand into new markets and new industries."
since the opening of this new Wigram facility the share price hasn't looked back.
only briefly interrupted by the covid outbreak feb 2020.
not the only contributing factor i'm sure. but significant.
Didn't they hold (still branded NZ First Capital) as well tons of CBL before they crashed?
While I don't want to imply that SKL will follow CBL, relying on any broker's investing other peoples money is as reliable than throwing darts while blind folded. Sometimes they hit and sometimes they miss - and hey, money is never smart - it is just cheap plastic which people agreed to value.
but NZX history in some spheres should in itself provide a different set of reasons & learnings ...
all but forgotten too .. but those were from past different times & crashes after rises :)
Should that be sending fresh warning signals now ? ;)
If it did then unpopular lowly trading bank accounts spitting out a very small fraction of 1% pa
before the taxman takes another swipe out of it may be more popular than they are now .. :)
Just goes to show - many economies are in effect run like ponzi schemes .. just remember to be among the
first out .. I guess ;)
$6.06 open...... Something is else seems to be going on here, other than analyst upgrades. What would be a takeover price??
I agree a very well run company with analysts valuing it at an average of $6.50 and as much as $7…..
I am not selling, plus we will get an update in October as to how the year is progressing so far. I would not be buying at these levels, but I feel it is a safe investment for now as they manufacture important stuff.
Up over 150% within a year is astounding
Holding tightly
https://www.skellerupholdings.com/Re...eport_FY21.pdf
Well worth while flicking through this if you interested in what the company does and where. Easy read.
Diverse products: Industrial $177mil, Agri $102mil
Diverse range of customers
Diverse geography they operate in.
Yes Blackie, maybe the new facility they are in is helping a lot.
Lot to like. I'm not selling either....although monitoring closely as they are a big % of portfolio...now 7.3%
Hoping its not a takeover and simply market reacting to Jarden's recent upgrade.
There is a lot to like.
I won't be selling either. One reason I invested many years ago as the fact that they produced quality products of which most of them eventually wear out and have to be replaced. The new factory in Christchurch was a great investment and is performing well. I would not like to see a take over and am looking forward to enjoying even greater returns in the future.
..
I reckon SKL has got too expensive to be an acquisition target
Paying say a 20% premium would cost an acquirer $1.44 billion and in return they get cash flows of say $70 million ….20 times cash flow makes a real expensive acquisition
You never know
Liz said “Skellerup’s global businesses have continued to outperform our already high expectations of them. We expect our NPAT for the first half of FY22 to be in excess of 10% above the prior comparative period. Demand is strong across the greater part of our businesses, and we expect this to continue,” ended Mrs Coutts.
F21 1st half NPAT was a record as well
Can’t do much better than that
yes perfect chart and to think it was sold by our software because the stupid ALGO did not see enough rise in profit...
oh i forgot we actually set the formula...
NEVER set and FORGET!!!
think what will happen when your car is hacked and the air bags are turned off by a terror plot...:scared:
Honestly, what do you smoke?
That aside, I was rather surprised how uninspiring the much vaunted Liz Couts was as a speaker, she laboured through her slides as if she was concurrently having an amputation. It even included the clanger about the employees "we cant speak highly of them".
Happy holder but after SEK AGM I bought more shares, after SKL I quietly went outside and beat myself with a kipper. Guess the market is rightly focusing on the content rather than delivery.
I would have eaten the kipper.
https://www.manxkippers.com/
Maybe influenced by this? fish slapping dance - Google Search
"Honestly, what do you smoke?"
smoking is very bad for your health and wont help you when doing those hills repeats on your bike. Dont smoke while biking in sweden else you will miss out on all those wonderful lakes. You will have to take the train as you will to be unfit to enjoy the bike rides.
Security software is just maths tracking patterns. The number of lines of code in a modern car is ever increasing and the security of the cars computer systems will become more important as the cars become just computers on wheels or in the AIR!
Anyway back this wonderful stock does it not have the perfect chart?
surely looks like it.
Yes Liz maybe getting to the point where many directors get at that age.
IFRS16 on leases has thrown a spanner in the works of 'comparative metrics'. Over the lifetime of a lease, the IFRS16 standard doesn't change the numbers. However the transformation of what used to be termed 'rent' into a 'depreciation of a right to occupy asset' and an associated 'interest on capitalised lease' charge, change the way the former 'rent' expense is dealt with on a year to year basis. IFRS16 is a relatively recent development. So my preference is to adjust current results back to what they would have been in a pre-IFRS16 environment, to provide better comparative results with previous years. SKL have reported their results in a way that makes such an exercise relatively straightforward. Here is the detailed calculation on how the $0.400m IFRS16 adjustment, in the FY2020 adjusted quoted above result, was made.
Post IFRS16
$5.227m Lease amortisation & impairment (Ref AR2020 Note 9 'Property, Plant & Equipment') plus $0.938m Financing Costs wrt Lease Payments (Ref AR2020 Note 16 'Finance Costs') equals $6.165m (Total)
Pre IFRS16
as listed $5.609m Lease Payments (Ref AR2020 Note 14 'Lease Liabilities')
=> FY2020 Expense Difference 'New - Old' = $6.165m - $5.609m = $0.556m
So under the IFRS16 reporting convention, 'rent' is higher which means 'profits' as reported will be lower. The adjustment to profits -after tax (assuming a tax rate of 28%) - back to what they would have been under the old reporting regime is therefore to add to reported FY2020 profit an amount of:
0.72 x $0.556m = $0.400m
SNOOPY
Took a beating today; hopefully reclaims the 50ma as it usually does.
Earnings Per Share = Normalised Net Profit over Year / No.of fully paid shares on issue at End of Year
2017: ($31.435-$2.507+$0.025m-[$9.300+0.28*$0.025])m /192.806m = 10.2cps
2018: ($37.918-$1.123-$10.641)m /192.806m = 13.6cps
2019: ($40.036+$0.170-$10.973)m/194.753m = 15.0cps
2020: ($39.831-$0.685-$10.767+$0.400+0.72x0.255)m/194.753m = 14.8cps
2021: ($54.245-$1.281-$14.070+$0.319)m/195.276m = 20.6cps
Notes:
a/ Results for all years have had foreign exchange currency gains removed (FY2017 $2.507m, FY2018 $1.123m, FY2020 $0.685m, FY2021 $1.281m) and losses added back (FY2019 $0.170m). Foreign currency gains (or losses) are not a measure of operational business performance.
b/ Result for FY2017 adjusts for removing the one off $25,000 earthquake relocation expenses (AR2017 p39) respectively, by adding back the effect of a hypothetical situation where these losses were not incurred. The $9.300m tax figure used for FY2017 respectively has already incorporated the tax relief on these expenses which did occur. But we are modelling the situation where they did not occur. So we have to:
i/ Add in the extra tax payable when certain expenses did not occur (because profits would be higher than anticipated) .
ii/ Add back the expenses themselves that were not incurred, because expenses not paid amount to profit before tax.
c/ FY2020/FY2021 results adds back an after tax $0.400m/$0.319m 'before IFRS16' adjustment, to allow a like-with-like comparison of NPAT with previous years.
d/ FY2020 result adjusted for a $0.255m 'vacated lease' payment. ( AR2020 )
Conclusion: 'Pass test'.
SNOOPY
Return on Equity = Normalised Net Profit After Tax / Shareholder Funds at End of Financial Year
2017: $19.635m /$159.247m= 12.3%
2018: $26.154m /$172.286m= 15.2%
2019: $29.233m /$178.392m= 16.4%
2020: $28.963m /$184.563m= 15.7%
2021: $40.243m/$196.140m= 20.5%
Conclusion: 'Pass Test'
SNOOPY
Net Profit Margin = Normalised Net Profit / Revenue
2017: $19.635m /$210.232m= 9.3%
2018: $26.154m/$240.408m= 10.9%
2019: $29.233m/$245.792m= 11.9%
2020: $28.969m/$251.389m= 11.4%
2021: $40.243m/$279.613m= 14.4%
I see a good margin lift from FY2017 to FY2021 with just a small dip on the year Covid-19 hit.
Conclusion: Pass test
SNOOPY
I skipped the BT1/ test because Skellerup is just as powerful in its chosen target markets as it was last year, but incrementally better. So the 'Pass Test' result for 'Buffett Test 1' is carried over from FY2020.
https://www.sharetrader.co.nz/showth...l=1#post843610
Very impressive result on all four Buffett tests over FY2021. As per my equivalent FY2020 round up, the fact that Skellerup is a great company is no secret. But almost everyone involved in the markets knows this. This is reflected in the market PE for Skellerup on adjusted earnings soaring to over 29, by 30th September 2021. So it is very important potential investors bear in mind the value equation
'Good Company' + 'Paying too much for Shares' = 'A Poor Investment'
Can the historical PE ratio has continue to expand even further? The share price has doubled over a year. The dividend is up by around 30% over the same period. Investors can see from this that most of the share price gain over the year has been due to 'multiple expansion'. I would be very surprised to see the share price double again in the coming year.
But what is the investment case for new investors from here? This is the next task for me to investigate.
SNOOPY
'MDRT' is the answer to the question:
"If all profits for the year were put towards paying off the company's debts, how long would that take?"
My rule of thumb for the answer in years is:
years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern
FY2017 FY2018 FY2019 FY2020 FY2021 Bolt on Acquisitions New Wigram factory opens Nexus Foams (NZ) & 35% of SimLim (USA) Silclear (UK) Projects Vanilla & Tika IT upgrades Cash & Cash Equivalents: {A} $6.022m $9.681m $9.639m $13.617m $15.673m Non Current Borrowings: $41.777m $40.400m $46.215m $41.300m $24.000m add Current Borrowings: $0.0m $0.0m $0.0m $0.830m $0.409m equals Total Borrowings: {B} $41.777m $40.400m $46.215m $42.130m $24.409m Total Net Borrowings: {B} - {A} $35.755m $30.719m $36.576m $28.513m $8.734m Net profit declared {C} $22.110m $27.277m $29.063m $29.064m $40.175m MDRT ({B} - {A}) / (C} 1.6 years 1.1 years 1.3 years 1.0 years 0.22 years
In the case of MDRT it is really only the latest figure that matters. But historical figures do give a feel for how conservatively (or not) the business has been run in recent years. Skellerup are in the most conservative position they have been in for five years. Yet over the period Skellerup has made serious capital investment and bought some useful bolt on acquisitions along the way. Growth is being pursued while debt has almost disappeared. There is a lot to like in this picture. I have no qualms about giving Skellerup a 'pass' on the MDRT front.
Now having reassured ourselves that the Buffett growth model is relevant to apply in this case. let's see what happens when we apply it.
SNOOPY
For the FY2021 edition of the Buffett growth model, I have recalculated these parameters as below.
FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 Average Return on Shareholder Equity 14.7% 12.3% 15.2% 16.4% 15.7% 20.0% 15.7% Dividend Payout Ratio 92% 88% 71% 83% 87% 68% 82% PE Ratio at 30th September 11.5 16.6 15.7 15.2 19.9 29.1 18.0
The dividend payout ratio is based on the dividends actually paid out in the financial year under question - normally the final dividend for the previous year and the interim dividend for the current year, (not the dividends declared relating to the results of that year).
The number of previous years that I use to generate my data is a judgement call. The more years of data that you use, the better longer term picture you get. But over time a business evolves. So the longer series of data may be less representative of the business today, and going forwards. And it is the future that is of most interest when we are making future projections. FY2016 marked the start of a 'new era' for Skellerup. I quote from the Chairman's address in the FY2016 Annual Report.
"The FY16 year included a number of notable milestones. The most significant is the completion of the of the base build of our new facility at Wigram which has enabled us to commence the careful and gradual relocation of our Agri business from Woolston to Wigram."
"Another notable milestone has been the growth we have achieved in international markets."
I have elected to use my 'minimum period' of six years, to keep my Return on Equity, Dividend Payout Ratio and market rated PE position most relevant.
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 modelling numbers that I have generated into the Buffett style ten year growth model.
For this model I am using:
a/ an ROE of 15.7% (the actual average of the last 6 years) AND
b/ a dividend payout ratio of 82% (the actual dividend payout ratio of the last 6 years).
I have noted that the dividend going forwards is likely to be 50% imputed. The reason why the Skellerup dividend is only 50% imputed is that 50% of profits are now generated overseas. This tax matter has no real bearing on the operational performance of Skellerup. But from an investor perspective, this means extra tax (at a rate of 28%) must be deducted from half of all future dividends, compared to if an equivalent fully imputed dividend was to be paid. I have adjusted for this in my calculation table by including an extra tax deduction column in my table (assuming all dividends going forwards are 50% imputed, 50% non-imputed).
SOFY FY Asset Backing Operations Earnings adjust OCI (*) less Dividend equals Retained Earnings Unimputed Dividend Tax 2020 (historical) 0.916 0.150 0.011 (0.130) 0.031 (0.018) 2021 (historical) 0.942 0.205 (0.01) (0.140) 0.055 (0.020) 2022 0.997 0.157 (0.128) 0.029 (0.018) 2023 1.026 0.161 (0.132) 0.029 (0.018) 2024 1.055 0.166 (0.136) 0.030 (0.019) 2025 1.085 0.170 (0.140) 0.030 (0.020) 2026 1.115 0.175 (0.144) 0.031 (0.020) 2027 1.146 0.180 (0.148) 0.032 (0.021) 2028 1.178 0.185 (0.152) 0.033 (0.021) 2029 1.211 0.190 (0.156) 0.034 (0.022) 2030 1.245 0.195 (0.160) 0.035 (0.022) 2031 1.280 0.201 (0.165) 0.036 (0.023) 2032 1.316 0.207 Ten Year Total (1.461) (0.204)
(*) OCI = 'Other Comprehensive Income' (hedging and foreign currency adjustments)
With FY2032 projected earnings of 20.7cps, and using a PE ratio of 18.0 (actual average over the last 6 years), the expected share price for Skellerup in ten years time is:
18.0x 0.207 = $3.73
The net dividend return for shareholders over that time is $1.461 - $0.204 = $1.257 (as per above table)
Using a market share price today of $6.05, the expected compounding annual return 'i' can be calculated from the following equation.
$6.05(1+i)^10 = (3.73 +1.26) => i= -1.91%
This projected -1.91% return is a net negative return per year. Is this a joke? How can such a projected return every year for ten years - no less - be correct?
To understand this result, you have to realise that this is a mathematical model that will faithfully spit out a result from the data you feed it. So how good is the data the model is being fed? Notice that the projected earnings for FY2032 are 20.7cps, verses actual earnings for FY2021 of 20.5cps. IOW I am modelling earnings to be virtually flat after ten years, with years of lesser earnings in between! Is that a plausible scenario? From where we shareholders sit today, such a result would be extremely disappointing to be sure. Yet if we use the actual historic return on equity, averaged over 6 years, and the actual dividend payout ratio, then these are the kind of earnings we shareholders might expect.
This modelling is suggesting that all of those productivity improvements at Skellerup over the last few years will 'revert to a mean' i.e. go backwards. Given Skellerup have announced further productivity improvements going into FY2022, this modelling assumption looks likely to be wrong.
The second modelling assumption that is well out of whack with today's market (PE of 29) is that I am assuming a PE ratio of 18 in 2032. I did not pull that figure of 18 out of thin air. It is the actual historical average over six sample dates. Shareholders coming on board over the last couple of years (eps has grown 37% since FY2019) might like to reflect that most of their share price gains (SP +160% over the same period) have been due to 'valuation multiple expansion'. Growth in earnings has occurred. But the share price growth has way outstripped earnings growth. IMO the 'multiple expansion' that has driven so much of shareholder returns over the year or two in particular has now become a real risk factor that could sting shareholders if that PE valuation metric deflates. If that is a somewhat sombre note on which to end this analysis, then so be it. Don't e-mail Warren Buffett and ask what he thinks, as I don't think there is any chance he will be on the Skellerup share register!
What Skellerup share price (P) would Warren need to buy Skellerup at to get his much touted 15% compounding return per year over the coming decade?
P(1+0.15)^10 = (3.73+1.26) => P= $1.23c
SNOOPY
discl: shareholder, with an average entry price of $1.33
You were a little quick off the mark with your reply Biscuit. I have since raised my ten year price target for SKL from $2.84 to $3.73. So you are only going to lose $2.27 per share over the next ten years, not $3.16 ;-P
Seriously though, a PE of 29 is a high valuation. Yahoo finance shows two analysts following SKL
https://finance.yahoo.com/quote/SKL....lysis?p=SKL.NZ
One is forecasting eps of 23cps for FY2022. The other 24cps. Both are looking forward to FY2023 and an eps of 26c. At $6.05 this implies a forward PE for FY2022 between 25.2 to 26.3, and a forward PE for FY2022 of 23.3. Stack those numbers up against the six year historical average PE of 18.
Certainly the performance of SKL over the Covid-19 crisis period has been resilient and impressive. Do you regard SKL as now having moved on to a new level, that rather invalidates historical comparisons?
Historical gross dividend yield is:
Net dividend is: (6.5c+10.5c) = 17c (50% imputed)
=> Historical Gross Dividend = 8.5c + 8.5c/0.72 = 20.3c
=> Historical Gross Yield = 20.3c/605 = 3.4%
That yield is better than you can get at the bank for sure, but not that compelling. Does that not suggest there is quite a growth premium built into the share price already?
I have no reason to talk down SKL. It is my biggest NZX holding. But I am wondering what got you to push the buy button at 6 bucks?
SNOOPY
Thank you for sharing your analysis Snoopy. I recall your work a few years ago, at your entry point I think, which has been proven correct.
I think the business is transformed from what it once was but also think the price is quite ripe. I did buy some the other day at 595. Its a bit complicated, but I'm not actually adding to my long term holding at the moment. I'm bizarrely transferring holding from one entity to another and rather than do an off market transfer I thought I'd use the short term dip to buy on the one account and am currently waiting for it to go up a bit more to sell on the other account.
You are dead right Biscuit - this business has changed dramatically over the last 10 years and even again over the last 5 years. While the work snoopdog has put into his analysis is impressive, the execution of it is on the bizarre side and even that aside the underlying assumptions flawed. Like everyone I see SKL as fully priced and could see some fluctuations, but there are a lot of reasons why this share has been re-rated higher.
Lets take a step back. Over the last decade skl has dramatically changed its business model with its financial profile rapidly changing each year over the last 3-4 years. Skellerup has wrapped its business model around blue chip OEMs with long term macros driving their own growth. In the past SKL was more akin to a contract manufacturer prone to price & competitive pressures in less attractive more cyclical sectors. SKL has had extraordinary success in pushing up the value chain through its engineering capabilities to where it can offer whole of life technical solutions allowing it to better cross sell & upsell higher margin products & services. SKL has executed well at new product development getting it in the door and then capturing aftermarket sales with secondary products and services. SKLs customers are all undergoing lifting standards (over 50% of SKL revenues are from water or food products) growing faster than their ability to drive down prices. The segment also has higher switching costs as SKL products are critical technical components that the OEM cannot do without - particularly when SKL has gotten established providing secondary product sales and services.
Snoopy relies on past averages despite the business making dramatic incremental gains each year. Case in point: underlying EBIT in FY17 was about 15.6% of sales, which has increased every year to 20.7% in FY21A and that likely to be exceeded in this coming FY22 financial year. Its return on invested capital (pre tax) were ~16.8% in FY17A which lifted to 28.2% in FY21A and that is expected to increase to the lower to mid 30% range in the next 5 years or so. In line with that, net working capital intensity has likewise reduced as a % of sales from 30% to 25%. Higher margins, lower capital intensity has seen cashflow skyrocket, net debt reduce and dividend payout maximised.
Is the lift in ROIC sustainable or just a blip? Its most direct comparables suggest it is with SKL's measure sitting within the median even after it has improved each year. ROICs are also well correlated to their forward EBIT multiple with SKL sitting within the line of best fit. Comps include Datwler, Enpro, Hexpol, Illinois Tools, IMI, Nolato, and so on.
OEM customers have some strong long term tailwinds. Potable & waste water underinvestment is a theme globally and particularly in the united states, AU and NZ. Same with plumbing products. The agri infrastructure in the united states is in deficit so that should continue to grow alongside with global milk volumes (the OECD FAO outlook suggests volumes should increase at a 1.6% annual compound rate to 2029).
SKL has a good recent track record of undertaking immediately accretive acquisitions as well.
So personally I wouldn't be surprised to see EPS grow more that 50% from FY21A by FY24 to over 30 cps. Cheap? No. But good things rarely are. But snoopy's 10 year forecast share price of $3.73 is - for lack of better words - just silly.
Thanks for your post FM. Appreciate you taking the time. Sorry cannot give you a rep, computer says no. Must share rep around first
Well FM, the analysis method comes straight out of 'The Buffettology Workbook' by Mary Buffett (daughter in law of Warren) and is reputedly along the lines that Warren Buffett thinks. I don't wish to judge the method except to say 'it is what it is' and all assumptions are disclosed.
Whether the assumptions made, and as a consequence the results obtained, are flawed is a legitimate judgement call. My preference is to use input figures (assumptions) that are calculated rather than estimated, and make the judgement call on the result - not the input. That way, all the judgement comes at the end of the process. I avoid adjusting the input figures to obtain a result I deem reasonable (which would be a 'confirmation bias' analysis approach).
If a business substantially reinvents itself, then that historical information that I rely on may end up being outdated and inappropriate. There is always a trade off between using more years of business cycle history (good) and the fact that older information may be less relevant to the future (bad). And, separately, I am always wary of futuristic investment planning logic that goes "Ah, but things will be different this time."
In this instance I am happy with the trade offs I have made in assembling the input information, even though I find it awkward to believe the end result. Nevertheless, and in recognition of the fact that the future can take many paths, I must say I felt a lot better with keeping my SKL holding 'as it is' after I had read your 'counter view' (post 1079) FM!
SNOOPY
Glad you made on the trade ;-).
It is kind of counter intuitive and if you go to one of our esteemed learning institutions they won't teach you 'Buffett Think'. But the basic idea is that businesses go through cycles that are not entirely predictable. Supply is affected by drought or trade wars (as examples). Demand can be affected by unusual weather seasons, fashion trends or, dare I say it, even pandemics! The Buffett theory is that if you have a strong intellectual property, or a well established position in any market, you are almost certain to be able to ride out such ups and downs. Thus while it might be difficult to predict exactly where the business cycle will place a business in say, two years time, it is much more of a sure bet that your target business will still be hitting the right business notes in ten years time. Thus forecasting on a ten year basis, for particular selected well functioning businesses, is likely to be more accurate and easier than just looking two years down the track, (because you are looking through market noise).
In the case of Skellerup, I am much more comfortable telling you where they will be at EOFY2032, than at EOFY2023.
SNOOPY
I admire your determination to analyze in detail and there is value in doing that. Certainly hasn't done Warren B any harm. However, it is not something I could/would do. Too much detail for me, I like the big picture, a bit of detail, and then I'll manage the risk knowing I am often wrong. Your way may be better but it wouldn't work for me.
Fair enough. I replied to your post in detail because I was suddenly reminded the way I analyse companies is not 'mainstream' and laying out where I believe a company will be in ten years time might seem a bit crazy to the mainstreamer. It has been a while since I posted about the Buffett investment strategy in general. So my answer was aimed at showing general readers what I was doing, rather than trying to convert someone else to my way of thinking. My methods aren't always appropriate. They don't suit new fast growing companies in an establishment phase for example. So I am happy to leave those opportunities to others. I think as long as we are both pursuing investment strategies that 'work for us', it doesn't matter if we follow different paths. The only problem with 'following your own nose' is that for those that only have experience of investing in a bull market then every market movement is seen as confirmation that your own investment strategy is spot on. As Warren Buffett would say, it is only when the tide goes out you find out who is swimming naked.
SNOOPY
do what you do snoop dawg you certainly have a good eye for numbers and financial frameworks. also admire the use of reversion to mean as many analysts just see life as a hockey stick after a base year, without considering if the base year was ever maintainable. and as if recessions never happen!
I have had a quiet look at the FY2021 annual report. I have done a Buffett style evaluation and found the company very fully valued. So for a different perspective, what does the announcement of the HY2022 dividend payment do for valuing the company based on capitalised payments?
I have updated my valuation using the latest five years of 'rolling data'. FY2019 was been the first year that dividends have not been fully imputed, and it looks like given the multinational production strategy, this will be the case forever into the future. Granted, the dividends have been increased, which means that dividend hungry shareholders are not worse off in dollars paid out terms. As Liz Coutts highlights in the Chairman's address:
"While much of our product development and design is done in New Zealand, more than three quarters of our products are manufactured overseas"
The calculations to work out the equivalent gross figure for FY2019's, FY2020s, FY2021s and FY2022s unimputed dividends, those actually paid in the FY2019, FY2020, FY2021 and FY2022 financial years, are as follows:
FY2019 P1/ 7.0c (55% imputed) = 3.85c (FI) + 3.15c (NI) = 3.85c/0.72 +3.15c = 5.35c +3.15c = 8.50c (gross dividend)
FY2019 P2/ 5.5c (50% imputed) = 2.75c (FI) + 2.75c (NI) = 2.75c/0.72 +2.75c = 3.82c +2.75c = 6.57c (gross dividend)
FY2020 P1/ 7.5c (50% imputed) = 3.75c (FI) + 3.75c (NI) = 3.75c/0.72 +3.75c = 5.21c +3.75c = 8.96c (gross dividend)
FY2020 P2/ 5.5c (50% imputed) = 2.75c (FI) + 2.75c (NI) = 2.75c/0.72 +2.75c = 3.82c +2.75c = 6.57c (gross dividend)
FY2021 P1/ 7.5c (50% imputed) = 3.75c (FI) + 3.75c (NI) = 3.75c/0.72 +3.75c = 5.21c +3.75c = 8.96c (gross dividend)
FY2021 P2/ 6.5c (50% imputed) = 3.25c (FI) + 3.25c (NI) = 3.25c/0.72 +3.25c = 4.51c +3.25c = 7.76c (gross dividend)
FY2022 P1/ 10.5c (50% imputed) = 5.25c (FI) + 5.25c (NI) = 5.25c/0.72 +5.25c = 7.29c +5.25c = 12.54c (gross dividend)
Year Dividends as Declared Gross Dividends Gross Dividend Total FY2017 5.5c+3.5c 7.64c + 4.86c 4.86c FY2018 6.0c+4.0c 8.33c + 5.56c 13.89c FY2019 7.0c (55% I) +5.5c (50% I) 8.50c +6.57c 15.07c FY2020 7.5c (50% I) + 5.5c (50% I) 8.96c + 6.57c 15.53c FY2021 7.5c (50% I) + 6.5c (50% I) 8.96c + 7.76c 16.72c FY2022 10.5c (50% I) + ?c (50% I) 12.54c + ?c 12.54c Total 78.61c
Averaged over 5 years, the dividend works out at 78.61/5 = 15.7c (gross dividend).
I have given some thought as to whether I should revise my sought for "gross yield" in this new environment of very low interest rates. Given the resilience of Skellerup over the first year of the pandemic, plus the non discretionary nature of most of the product they supply, i ma reducing my sought gross yield from 7.5% to 7%.
Based on my selected sought after 7.0% gross yield over an historic five year business cycle window, , 'fair value' for SKL is:
15.7 / (0.07) = $2.25
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: $2.25 x 1.2 = $2.70
Bottom of Business Cycle Valuation: $2.25 x 0.8 = $1.80
My target accumulation price is 10% below 'fair value', and that equates to $2.03.
SKL shares are trading at $6.06 as I write this (well above the upper end of my capitalised dividend valuation range). An alternative way of looking at this result is to say that SKL has a 'capitalised dividend value' of $2.03 and a 'growth premium' of $6.06 - $2.03 = $4.03 (which is quite a bit).
SNOOPY
discl: hold SKL
Hi Snoopy, I do appreciate all the effort you put into assessing and evaluating companies and sharing the results with us - this is one of the things still making this forum a worthwhile read! ... and while nobody is able to predict which hoops and bumps the share price is going to jump through ... as a measure of earning value, it makes a lot of sense to look at the earnings potential of companies - and then it is just the question of waiting for the market to turn from a voting machine into a weighing machine.
For what it is worth - DCF value (courtesy to ShareClarity) is $3.46 per share ... if I use 10 times average EPS, it would be $1.40 per share and if I use the unmodified Graham formula I would come up with $6.31 per share, but this would require SKL earnings to keep growing with nearly 10% forever - and, how likely is this for a company operating in a quite cyclical environment with all its industries quite close to the peak?
Whatever it is - I think there is a good case to make that SKL is currently overpriced, and this is what your analysis says as well. What I don't quite understand is - why are you still holding after you went through this exercise - don't you trust the Buffett methodology?
discl: not holding :):
There are a lot of shares currently over priced! I’m holding this one because they are releasing consistent results and think they will continue to do so. I Kinda look at them like Delegat’s, give it a couple of years and they will be in mid teens dollar share value if they keep on this path.
I think SKL have benefitted a lot from robust dairy prices. One worry (for SKL) is the ongoing rise in carbon prices and how it could impact the medium/long term sector, both here and overseas if they get roped into having to take on more liability. And also people switching away from dairy to alternative products. but milk prices looking great for short term activity.
Also note your comment re delegats. Great company one of the few to make proper money out of wine! Good vertically integrated company - own their own vineyards, production, brand and distribution. has been and will continue to be in my portfolio.
We Skellerup shareholders have certainly had a good year. But 'good' is a word that must always have context. I find it useful to have a 'measuring stick'. Scott Technology is such a stick. Different in that it sells complete packages and not components. But the same in that both companies rely on Intellectual Property and trusted staff that can turn that knowledge into profits.
Skellerup Scott Technology Operational Sector Manufacturing Manufacturing Total Employees 813 622 Manufacturing Hubs NZ, Australia, Europe, North America, Asia NZ, Australia, Europe, North America, Asia Share Price 27-11-2021 $6.06 $3.37 Market Capitalisation 27-11-2019 $1,183m $267m Capitalised Dividend Valuation per share (2017.5 to 2021.5) $2.25 $1.27 Declared earnings (FY2021) $40.175m $9.527m Normalised earnings (FY2021) $40.243m $11.146m Normalised eps (FY2021) 20.5c 14.2c Normalised eps growth over 5 year period (FY2016 to FY2021) +72.3% +18.3% Historical PE (FY2021) 29.5 23.7 dps (paid during FY2021) 7c+6.5c 0c+2c Earnings Payout Ratio (excluding DRP) 68% 14% Gross dps (paid during FY2019) 8.96c+7.76c 0c+2c Historical Gross Dividend Yield (using Share Price 27-11-2021) 2.76% 0.59% Shareholder Equity (based on equity at EOFY2021) $196.149m $98.195m ROE (based on equity at EOFY2021) 20.5% 11.4% Sales (FY2021) $279.615m $216.234m Net Profit Margin (FY2021) 14.4% 5.2% Total Bank Debt (last balance date EOFY2021) $24.409m $10.920m MDRT (Based on bank debt at balance date EOFY2021) 0.61 years 1.0 years
A 72.3% growth rate at SKL over a five year period equates to an averaged annual growth rate of:
1.723^0.2 = 1.115, or 11.5% per year.
Perform the same exercise on SCT and you get
1.183^0.2 = 1.034, or 3.42% per year.
This goes some way to explaining why SKL is sitting on a PE of 29.5 verses 23.7 for Scotts.
Some more observations:
a/ If you compare my quoted reference exercise from the FY2019 perspective, both companies have reduced their bank debt to something that is almost insignificant.
b/ ROE at SKL remains about double that at SCT, although both have improved.
c/ SKL coped with the initial Covid-19 hit better than SCT, because SKL mainly supplied essential components whereas SCT 'capital projects' were deferred. But SCT took the opportunity to 'right size' the business, losing around 200 staff compared to the FY2019 pcp.
d/ Net profit margin at SKL remains around triple that of SCT (c.f. pcp), although both have improved.
Another comparison of note is to see by how much the market price exceeds the 'capitalised dividend valuation' price. This difference is one measure of the 'growth premium' accorded to each company by the market.
SKL: Growth Premium = $6.06 - $2.25 = $3.81 => Growth Premium is 63% of share price
SCT: Growth Premium = $3.37- $1.27 = $2.10 => Growth Premium is 62% of share price
Depending on how you see the outlook for both companies, you might interpret these figures as showing both companies being equally overvalued ;-P
The one difference that does not show in these figures is the effect of the 'change of direction' for Scotts, under their new CEO. This is steering the company towards more standardised products, away from one off builds. It will take a couple of years for this change to flow through to margins, bar no more shock Covid-19 interruptions (gulp!)
Concluding the Comparison
Both companies are conservatively financed, which is always good in a world where business opportunities are uncertain. Scott's cut their dividend payout drastically to achieve this, but Skellerup did not have to. I see Skellerup as the more resilient earner. The growth story at Skellerup is around incremental improvement and bolt on acquisitions. Whereas at Scotts, growth is more around 'executing the Scott 2025 vision plan' (more repeat sales of modularised products). I see the Skellerup path as more certain (they have a great knack of retaining customers as development partners), whereas Scotts are being more affected by macro-economic events. But I think if Scott's can co-ordinate the growth in their diverse international 'centres of excellence', then it is Scott's that have the most growth potential over the next two to three years. Looking beyond that time frame though, it is hard to imagine that Skellerup will be bettered on the long term growth path. If Skellerup are overvalued, there is a case to be made that they are not significantly more overvalued than Scott's are. The bonus for Scott shareholders is that they are always on the verge of cashing in a figurative 'mega lottery ticket'. If Scott's automated beef boning room project can be nailed, then there are a good decade of highly profitable installation projects lined up in Australia and the USA to follow up. So far, the 'mega lottery ticket application' (of which the automated beef boning room is simply the current one) has not kicked in for Scott shareholders. But we always live in hope! Being a 'glass half full' person, I am calling Scotts as the better value investment on the market today. Yet as a long term holder, I would feel more comfortable with Skellerup in my portfolio. Yes the price is dear, for both. But good things tend not to come cheap!
SNOOPY
discl: hold SCT and SKL
The re-rating of SKL over the past few years has been stupendous
For many years prior to 2019 its PE averaged 14 - it is now about 30 - that's some re-rating.(see chart)
Staggering how much market value added has been added (market cap less shareholder equity)
AT June 2017 shareholder equity was $159m and is now $196m (no much increase as a large proportion of earnings are paid as dividends) but market cap has increased from $328m to $1,183m today -- and increase of $855m taking SKL market value added to just under $1 billion.
Question is can this continue - if the market remains in love with them no reason why it shouldn't
Re-rating surely boosts shareholder returns
Say bought SKL 1/7/19 for $2.37 one has made $4.06 total shareholder returns (172% over just over 2 years)
The total return of $4.06 is made up of-
$0.88 from increased earnings or 22% of returns
$2.80 from being re-rated (higher PE ratio) or 69% of returns
$0.38% from dividends or 9% of total returns
Skellerup done well in growing earnings and paying decent dividends but 69% of shareholder returns has come from favourable market sentiment (reward for finally achieving some consistent results)
Classic case of what value investors look for ....... and eventually such investors have to decide when enough is enough from a value perspective and cash up
Good question BP. The general answer is that in these times of impossibly low interest rates, I am looking to invest in shares which have a good dividend yield, but nevertheless have the ability to grow earnings. That way, as interest rates rise, I stand a good chance of the shares I own retaining their capital value. SKL shares are a good fit for this scenario in my view. Of course if this was my only investment criterion, then I could buy SKL shares at any price and my investment goal woudl be satisfied! Clearly there must be a price that. despite the favourable outlook for SKL shares, is too much to pay. So what price is that? Going through your valuations one by one.
a/ Shareclarity @ $3.46 I dived into the Shareclarity website to check out the assumptions behind this. It is based on a weighted average cost of capital of 9.2%. I know there are datafeeds and formulas that have produced this figure (all historical out of necessity). But if this is an assessment of future risk, then I disagree with that figure. I have used 7% in my 'capitalised dividend value' calculations as a yield, and I would tend to see that as an appropriate discount factor as well. The long run growth rate looks a little low to me too, at just 2.8%.
Reducing that discount factor, assuming earnings two years out constitutes a representative correction, would increase the valuation by:
(9.2 x 9.2) / (7 x 7) = 1.73
That increases the DCF valuation to $3.46 x 1.73 = $5.98. Of course, the discounted cashflow bit of the valuation typically only amounts to 30-40% of the total, so that $5.98 would also include a higher residual growth rate, which I think is likely. Suddenly SKL at $6.06 looks 'in the ballpark'.
b/ 10 x average eps at 14cps = $1.40. That figure looks to biased towards historical earnings averages. I think we have 'stepped up' over the last year to a norm closer to 20c. A PE multiple of 10 sounds a bit miserable as well. Plus this valuation technique gives no allowance for growth.
c/ Security Analysis - Benjamin Graham formula original version
V = EPS x (8.5 + 2g)
where:
i/ V is the intrinsic value,
ii/ EPS is the trailing 12 month EPS,
iii/ 8.5 is the PE ratio of a stock with 0% growth and
iv/ g being the growth rate for the next 7-10 years.
I don't know what growth rate you were assuming BP. But working backwards from the numbers you gave me, I get:
631 = 20.5 x (8.5 + 2g) => g= 11.1%
That growth rate is not too far away from what SKL has actually achieved over the last 5 years.
Taking account of valuations a/ and c/, I think an SKL share price of 6 bucks is looking 'in the ball park'. Mr Market getting it right?
SNOOPY
The thing I love about Winner's contributions to this forum, apart from his encyclopedic knowledge of NZ corporate history, are the accounting tech terms he occasionally throws in, to educate we 'investment gatecrashers' newer to the investment party game than him. This one I had to look up.
'eward': "A reward gained through electronic, internet or computer reported means, for which the recipient needs to make little or no effort."
Love it! I will take any 'ewards' I can get in my investing future!
SNOOPY
Like I have said before, the 'Buffett Methodology' is a mechanical process feeding in numbers generated largely without human input operator judgement. It is then up to you to make sense of what comes out at the end. Refer back to my post 1073:
https://www.sharetrader.co.nz/showth...l=1#post927468
I see actual earnings in FY2021 of 20.5cps, 'rising all the way' (sic) to modelled earnings of 20.7cps in 2032. How does that look to you (virtually zero growth for ten years)? No, I don't believe it either.
This modelling works on historical averages. The main factor that has produced such modest growth is the historical ROE average that I have used of 15.7%. Over FY2021 actual ROE was 20%. If I had used this figure then the compounding growth over ten years would have produced a much higher valuation. There is something to be said for using historical averages, because we know such figures have been achieved in the past. There is no 'wish factor' in using those figures for future forecasts. However, in this instance, the average is a substantial drop from the recent past. How realistic is that? Like all forecasts, believing the numbers does come down to a judgement call in the end. If I was a betting mutt, I would pick some 'reversion to the mean', because I know ROE numbers won't go up forever. But my gut feeling is that ROE won't reduce back to 15.7%.
So to answer your question, yes I do trust the Buffett Methodology in process. But I think in this instance, the ROE input factor in particular, has a question mark over it. If everything does 'revert to the mean' though, the Buffett Methodology as presented is a future prediction of what will happen.
SNOOPY