Great post Snoopy comparing SCT and SKL. Interesting also to see that SKL reducing the number of employees and are making more $ compared to last year.
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Great post Snoopy comparing SCT and SKL. Interesting also to see that SKL reducing the number of employees and are making more $ compared to last year.
This is my observations on the data in post 1110
An 83% (normalised earnings) growth rate at SKL over a five year period equates to an averaged annual growth rate of:
1.830^0.2 = 1.128 or 12.8% per year.
Perform the same exercise on SCT with their 5 year 52.8% earnings growth and you get
1.528^0.2 = 1.0884, or 8.84% per year.
Of note, and in complete contrast to the previous year, at our reference date both companies were trading on the market at almost identical PERs. Distorting the picture was that Scotts had announced that a board solicited buyout of the whole company was being investigated. On the day before my reference date, it was announced that no offer for the group as a whole at a satisfactory price had been forthcoming. But other early stage initiatives that had presented themselves were being worked on.
Resulting snapshots of the respective share price, and the implied historical price earnings ratios, on comparative dates are in the table below:
Date 27/11/2022 14/11/2023 16/11/2023 SCT Share Price $2.65 $3.49 $3.35 SCT historical PER 16.6 18.0 17.3 SKL Share Price $5.45 $4.96 $5.18 SKL historical PER 22.3 18.1 18.8
One thing we have to remember is that while the recent past can provide a hint about the performance of the near future, sharemarkets are always forward looking. Scotts PER would suggest that, takeover aside, the market perceived 'percentage growth prospects' of Scotts have not changed much 'year to year'. By contrast the equivalent numbers at Skellerup have declined, but from a much higher level to a slightly higher level than found at Scotts today. IOW it is Skellerup's perceived decline (albeit from high levels) that has seen the PER comparison between the two 'close up'.
Some more observations:
a/ The SKL share price has declined by a further 9% between 2022 and 2023 reference dates, whereas over the same time the SCT share price rose by 32%.
b/ Both companies continue to hold their company debt, as measured by the Minimum Debt Repayment Time, at low levels.
c/ ROE at SKL is just shy of double that at SCT, although while both improved over FY2023, the ROE at SCT improved a little faster.
d/ From a staffing perspective, SKL shrunk their workforce (62 jobs shed) as key customers reduced their inventories in line with what they used to be in the pre-Covid era. I am not sure what aspect of the business required Scotts to modestly increase their workforce (23 jobs added) over the same period. But Scotts did highlight that service and aftermarket revenue was up 28% over the year before.
e/ 'Net profit margins' were roughly consistent compared to the previous year, with SKL's a tick higher while SCT was a tick lower. Nevertheless SKLs more standardised product manufacturing allows a net profit margin 2.7 times that of Scotts (c.f. 2.5 times that of SCT in the previous year and 3 times in the year before that).
Neither company makes a good yield play investment, now that interest rates have well and truly risen.
But it is interesting to see by how much the market prices of the shares exceeds the 'capitalised dividend valuation' (a proxy for dividend paying expectation) price. This difference is one way of measuring any 'growth premium' the market attaches to each share.
SKL: Growth Premium = $4.96 - $3.38 = $1.58 => Growth Premium is 32% of share price
SCT: Growth Premium = $3.49 - $1.09 = $2.40 => Growth Premium is 69% of share price
No surprise in the year on year trend here. A boost in the dividend at SKL, while the share price declined, has lead to smaller proportion of the share price making up a growth premium. Likewise, but in reverse, a static dividend at SCT (on increasing earnings I might add) and a higher share price means the growth premium part of the market share price has gone up. This is a good indication, even leaving aside the potential SCT takeover offer (now deflating), that the market sees SCT as the company more likely to grow over 2024. The same indicator (although far less pronounced) suggested that SCT would grow profits faster than SKL over FY2023 and that is what happened.
SNOOPY
Just returned from the Scott AGM and after chatting with CEO JK afterwards, I found out a bit more information on the demise of 'Robotworx', the former subsidiary -US based- that covered the reselling and refurbishment of second hand industrial robots . It looks like my calculations from FY2021 (quoted above) were close to the money. In fact Robotworx had not made money for the last 3-4 years of operations. The cause was an improvement of supply of new industrial robots from the OEM industrial robot manufacturers, both in terms of logistical product logistics supply and new product at lower price points. That coupled with rising costs of refurbishing older robots meant that the 'used robot market' became a much more difficult commercial proposition. Scott's had to ask themselves if this was really a market space they wanted to continue in for the longer term. And the answer they gave themselves was a clear 'no'. Result: Robotworx - exit stage left - at a $12.612m loss for Scott shareholders :(. An historic loss booked in FY2022.
SNOOPY
During my post AGM chat with CEO JK, he touched on the exit from the HTS (High Temperature Superconductor) business during FY2021. For those who have forgotten about it:
https://www.hts-110.com/
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Why HTS-110?
HTS-110 is the only company worldwide dedicated to the design and manufacture of HTS magnets and components, with over 18 years’ experience in HTS machine design.
HTS-110 specialises in HTS coil, current lead, and custom magnet projects and will work closely with your technical team to define and implement class-leading superconducting systems. Or select from a number of specialist applications and product areas where our HTS technology has already demonstrated clear user advantage and acceptance.
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In short, the HTS-110 company is run by ex-university boffins, selling their hi-tech to other university boffins still in universities. There is nothing wrong with the products, and they are cutting edge. Nor is there a problem with 'university boffins'. The problem is that, as far as Scott is concerned, the immediate market potential is just too small and the growth potential time horizon for more commercial applications is too uncertain,. Given the automated robotics markets opening up in the sub sectors of 'protein' 'mining' and 'materials handling', it made more sense to sell this business into private ownership. This Scott did, with ownership now resting with senior management in conjunction with the 'Booster Tahi Limited Partnership', a kiwisaver growth fund.
SNOOPY
Chairman's address:
https://scottautomation.com/assets/I...ns-Address.pdf
CEO's address
https://scottautomation.com/assets/I...Os-Address.pdf
AGM Presentation slides
https://scottautomation.com/assets/I...ember-2023.pdf
Unlike last year, with the announcement of the Caterpillar heavy duty electric mining vehicle project, there was no ground breaking new project announcements to get the shareholders excited. If there had been the wider public would not have known, because, for the first time I can remember, the ODT did not send out a reporter to cover the meeting. There was a reasonable turnout of shareholders, around 30 by my count, in the 'Graham Batts Meeting room' (Graham a stalwart of the company for many decades is retired but still alive and in good form) with another 50 shareholders looking in on-line.
The non executive director turn out was a bit light though, with only Chairman Stuart McLaughlin and John Thorman making it. It was very disappointing not to see the Australian JBS contingent there, given the ownership shake up instituted by them during the year was obviously going to be a point of contention. However, there were other unspecified JBS matters requiring their attention in Australia apparently. Nevertheless JBS Australia CEO Brent Eastwood at least, had the good grace to look in on the meeting AGM via the hybrid webcast, that was broadcast on line.
Come question time, one shareholder did get stuck into Chairman Stuart regarding the JBS position. Were they still a supportive shareholder? Were they even still a supportive customer? (I must admit I had doubts about this, given the seemingly glacial progress of the automated beef boning room, while other products like the chicken trussing machine for other customers forge ahead). However, the answer to both questions was 'yes' and 'yes', with Brent Eastwood himself giving an audio address from across the Tasman, confirming Chairman Stuart's own affirmation. I have to admit I found the clarification of the JBS position a great relief.
During the 'after AGM workshop tour' with the head of the Dunedin headquarters Andrew Arnold, I found out that the Australian development partner of the the automated beef boning project, Teys Australia, a leading protein processor, had quit. And JBS had stepped in as the new development partner to ensure that the project continued. This isn't as disruptive as it appears. Scotts were doing all of the production engineering line development, and Tey's were to do the real world evaluation of the technology on the processing line. All the change means is that, next month, the evaluation prototypes get shipped off the JBS in Australia rather than to Teys. I suspect the change of heart at Teys was in response to corporate cost pressures, rather than a loss of confidence in the technology. But 'time will tell' on that.
The workshop tour was primarily to show off a 'working display' of the chicken trussing processing machinery in Scott's Kaikouri Valley workshop - (but without the chicken carcasses on the moving production line at the time of course). In real life installations, the chickens must still be 'manually loaded'. But everything is fully automated after that. Scott's envisages that the poultry trussing machines will be built in Dunedin for now. But there are plans to establish an alternative construction facility in Christchurch, should demand expand according to plan.
Another shareholder had a question on the automated fish de-boning project. CEO JK said it had proved a difficult engineering challenge, with all the small fish bones to deal with, and the project was now dead.
A further shareholder, asked about progress on the Caterpillar deal, announced with much fanfare at last years AGM. He bemoaned the fact that there had been no update since. JK noted that he had met with representatives of caterpillar in Christchurch just last month and the project was progressing well. (Personally I was of the opinion that putting hydrogen into fuel cells and using those to drive electric motors is a far better green heavy transport solution than batteries. But then again, there is the issue of transporting hydrogen fuel to the outback mines -where it is required-, which in itself requires specialised equipment). I guess the fact that Caterpillar have considered the hydrogen power route, and this has not put them off battery technology (heavy batteries reduce the payload of mining trucks, which is an issue) means the gamble of going into this partnership with Caterpillar is not the long-shot I thought it was. Nevertheless I would not be holding my breath on any translation from automated re-fuelling for electric mega-dump trucks to profit at Scotts just yet!
On the move of the three at the top management table from Dunedin to Auckland, apparently CEO JK has his family based there. Funny, I always thought that JK was a Dunedinite, but apparently not! So you can understand JK not wanted to wrench his family from their Auckland base to Dunedin.
There was a fine spread at the end of the Dunedin factory tour with both liquid and solid refreshments. I got stuck in to the red wine and crumbed fish bites and the rye bread salad club sandwiches. Someone told me it was one of the local hotels that puts on the catering. The certainly do a fine job.
SNOOPY
Saw an article on Rocklabs opening in Auckland the other day and wondered how SCT shareprice going.
Currently $3.00, well off high of $3.91 not that long ago. Seems strategic review to find a buyer failed and punters not too confident of an offer coming out of the blue
Is share price heading back to pre-covid levels?
I have had a buy order in for several months at $3 Winner, that was finally executed this afternoon. $3 represents an historic PE of 15 on FY2023 earnings. Not cheap, but the PE has not been that low since 2015. I think $3 equates to a good price to top up, because that share price can be justified purely on operational grounds, leaving aside any fancy transactions (takeovers included). SCT seems at last to be on a steady growth path with their new more focussed 'standardised product' strategy. So I have been looking to accumulate at a fair price.
How would I expect the individual Scott business units to be going?
a/ There could be a slow down in the automated meat processing units ordered in Oz and NZ, due to the beef and lamb downturn.
b/ But Rocklabs seems 'on the tear' (hence the new facilities in the Airport precinct).
c/ Appliance line production is always a bit up and down.
d/ But there is a pretty full order book for the automated packaging facilities built in Europe.
e/ Bladestop safety bandsaws are doing well everywhere.
The half year has just closed off as at the end of February. So the half-year guidance would be expected to be reported in mid-April. Personally I am not too worried what they report, as I believe any downturn will be more likely 'orders delayed' rather than 'orders cancelled'.
SNOOPY
CEO on way out
http://nzx-prod-s7fsd7f98s.s3-websit...170/415126.pdf
That resignation by JK is a bit of a shock. But on reflection not too much of a surprise. 4.5 years is probably the sort of tenure you might expect from a transformative CEO. Come in with your ''re-imagining the business' plan. Execute, then leave. JK an Aucklander of course. So with all the dirty work done any residual resentment also goes out the door with JK. Time to appoint a true 'southern man' to the CEO role now. What about Brent from Invercargill? Surely he is sick of Australia where he has been leading JBS Australia for a while? After being a Scott director for that many years, he certainly knows the business. But instead the interim CEO (will he be invited to permanently step into the top job?) Aaron Vanwalleghem - President of Europe and North America - is about as 'northern a man' as you can get.
SNOOPY