FY2017 Profit Forecast: RobotWorx
Quote:
Originally Posted by
Snoopy
|
Divisional Profit (NPAT) |
Explanation |
Robotworx USA |
$0.817m |
(From FY2014 acquisition year) |
I have concluded that 'Robotworx' just might be the hidden star in the FY2017 results. But how much might they make? If you look at the segmented results for FY2016 (note 27b, AR2016), I believe that 'Robotworx' is part of 'Americas Manufacturing.' No doubt the Dallas Texas based service facility results are rolled up into this market segment too.
The 'cleanest' figures to be found in the annual report are from AR2014 under section 23f titled "Impact of Acquisitions on the Results of the Group.' The following quote is from that section:
"Included in the Group financial statements is revenue of $2.6 million and a net profit after tax of $492,000 attributable to the additional margin generated by RobotWorx, and revenue of $113,000 and a net loss after taxation of $69,000 attributable to the purchase of Applied Sorting Technologies Pty Limited."
"Had these acquisitions been effected at 1 September 2013, the revenue of the Group from continuing operations would have been approximately $67 million, and the profit for the year after taxation and non controlling interests from continuing operations would have been $3.25 million."
I have rearranged this information (and other information from the income statement) into a more useful tabular form below.
FY2014 |
RobotWorx |
Applied Sorting Technologies |
Other |
Total |
NPAT (Operating) & Controlling Interests |
$0.492m |
-$0.113m |
$2.546m |
$2.925m |
FY Annualising Correction for Net Profit |
$0.325m(e) |
$0m (e) |
$0m |
$0.325m |
Total |
$0.817m |
|
|
$3.250m |
Acquisition Price |
$9.004m |
$1.292m |
|
|
There was no break down given as to how much each new acquisition unit would have contributed to profit. However, because:
1/ the price paid for 'RobotWorx' was close to ten times that paid for 'Applied Sorting Technologies' AND
2/ 'Applied Sorting Technologies' was not profitable during the holding period we know about.
I have assumed that all of the incremental profit, had both units been owned for all the financial year FY2014, would have come from RobotWorx. An assumption is indicated in the table by the letter 'e' in brackets following an assumed figure. (e) means 'estimate'.
This table shows how I calculated the NPAT for RobotWorx in FY2014, the $0.817m that I previously published. In FY2015 the segmented results were reclassified and 'Americas Manufacturing' showed a total profit of $0.325m. This is below the $0.429m booked by RobotWorx on its own. So it follows that the other 'Americas Manufacturing' business units must have been loss making overall in FY2014. This seems realistic, because the Dallas Branch is really a service centre that has the job of seeing that the appliance production system lines built in NZ and China run smoothly after their installation in the United States. So it is probably a net cost for SCT to run the Dallas branch.
I used the $0.817m same figure in my FY2017 NPAT estimate for RobotWorx profit, as I had assumed no growth for three years. But if real profit growth has followed predicted industry revenue growth (17% compounding per year) then I expect I have underestimated profits from RobotWorx for FY2017.
So what is the actual RobotWorx profit for FY2017 likely to be? Try this:
$0.817m x 1.17 x 1.17 x 1.17 = $1.309m
SNOOPY
FY2017 Profit Forecast: MAR: Part 1
MAR stands for 'Machinery Automation and Robotics', the Australian business acquired by Scott Technology in FY2015. This company has now been rebranded 'Scott Automation and Robotics'. SCT paid out $14.224m for this company. That is around $5m more than they paid for 'RobotWorx'. So as a shareholder I would hope MAR contributes significantly to the profitability of SCT going forwards.
The results of MAR are submerged in the Segmental Analysis of 'Australasia Manufacturing'. This business unit includes all the Meat Processing Robotics made in Dunedin, the Material Mining Equipment made by Rocklabs and the Appliance Production Lines manufactured in Christchurch and the HTS Electromagnets made in greater Wellington. This results in a collection of results so jumbled, it is impossible to assess how well MAR is doing.
The purest MAR figures we have can be found in AR2015, under section 23 'Acquisition of Subsidiaries and Businesses'. Quoting from that section:
"Included in the Group financial statements is revenue of $13 million and a net profit after tax of $161,000 attributable to the additional margin generated by MAR. Had this acquisition been effected at 1 September 2014, the revenue of the Group from continuing operations would have been approximately $80 million, and the profit for the year after taxation and non controlling interests from continuing operations would have been approximately $6 million."
These figures can be used to help draw up a 'before acquisition' and 'after acquisition' profit table comparison.
FY2015 |
MAR |
Other |
Total |
NPAT (Operating) & Controlling Interests |
$0.161m |
$5.952m |
$6.113m |
FY Annualising Correction for Net Profit |
-$0.113m |
$0m |
-$0.113m |
Total |
$0.048m |
|
$6.000m |
Acquisition Price |
$14.224m |
|
|
The net result of the transaction then is that shareholders shelled out just over $14m to reap a mere $48k profit. Expressed in another way, the investment yield on MAR in the year it was acquired was:
$0.048m / $14.224m = 0.34%
0.34% represents just $3.40 of profit for every $1,000 of outlay. Putting that same money in the bank at 3% interest would earn nearly ten times that amount! Can anyone explain why SCT management would have agreed to this transaction and bought such an apparent dog?
It would appear from the limited information in the FY2015 annual report that at the time of purchase no meaningful profit from MAR was being made (or will ever be made?)
SNOOPY
FY2017 Profit Forecast: MAR: Part 2
Quote:
Originally Posted by
Snoopy
MAR stands for 'Machinery Automation and Robotics', the Australian business acquired by Scott Technology in FY2015. This company has now been rebranded 'Scott Automation and Robotics'.
<snip>
The net result of the transaction then is that shareholders shelled out just over $14m to reap a mere $48k profit. Expressed in another way, the investment yield on MAR in the year it was acquired was:
$0.048m / $14.224m = 0.34%
0.34% represents just $3.40 of profit for every $1,000 of outlay. Putting that same money in the bank at 3% interest would earn nearly ten times that amount! Can anyone explain why SCT management would have agreed to this transaction and bought such an apparent dog?
It would appear from the limited information in the FY2015 annual report that at the time of purchase no meaningful profit from MAR was being made (or will ever be made?)
Have gone back to the SCT 14th December 2014 announcement about the MAR acquisition.
"We have completed our due diligence on MAR and will now work toward signing the agreement and finalising the transaction with a target settlement date of 31 January 2015. The transaction has a value of 13 million Australian dollars, subject to final adjustments, and is expected to contribute to the bottom line from day one."
I remember reading this in period and thought it sounded good. But "to contribute to the bottom line from day one" just means it is making money, which must be more than the cost of the debt incurred to buy it.
How much was SCT paying on that $14.224m debt facility in those days? According to note 15 'Bank Facilities' in AR2014 (31st August 2014) the interest rate being charged was 5.94% for the NZ part of the loan. That reduced to 5.31% in AR2015 (31st August 2015). I will go with the higher rate as that is closer to the period leading up to 30th January 2015, when the MAR settlement was signed.
0.0594 x $14.224m = $0.845m
This means the underlying MAR must have been making in the region of that amount if Scott management were not lying. So what reduced the actual profit in FY2015 to just $0.045m? Maybe MAR shelled out $800k to some high powered consultants to evaluate the Scott's offer, thus cutting their earnings for the year to virtually nothing?
SNOOPY
FY2017 Profit Forecast: MAR: Part 3
Quote:
Originally Posted by
Snoopy
Can anyone explain why SCT management would have agreed to this transaction and bought such an apparent dog?
To partially answer my own question, here is a quote from the FY2015 Annual Report
-------
23(e) Goodwill Arising on Acquisition
The consideration paid for the acquisition of the MAR business effectively included amounts in relation to the benefit of expected synergies, revenue growth, current product development and knowhow, future marketing development and its assembled workforce. These benefits are not recognised separately from goodwill as the future economic benefits arising from them cannot be reliably measured and they do not meet the definition of identifiable intangible assets.
-------
When Scott's was independently valued during the JBS takeover, zero value was assigned to:
1/ The company's joint venture development subsidiaries (because they had been financially engineered to make no profit) AND
2/ Intellectual property, the patent portfolio in particular.
I wonder if MAR was in a similar situation?
In effect there was product development at the Sydney MAR HQ in the pipeline that will likely have serious economic value going forwards, but had not created any profit to date. SCT recognised this and were prepared to pay what looked like an 'over the odds' price for MAR to a casual observer.
Then were have this excerpt from Scott's 30-01-2015 press release
-------
About the Potential
MAR’s strengths in electrical, programming and controls, complements SCOTT’s strengths in mechanical design and vision.
-------
What Scott's are saying here is that combining Scott Technology with MAR is a case of 1+1=3. Paying 'over the odds' for MAR at the time was not as stupid as it looked.
SNOOPY
FY2017 Profit Forecast: Iteration 2
Quote:
Originally Posted by
Snoopy
Well that was a clanger of a recommendation wasn't it? 'Buy only on weakness', below $1.42, and the price has increased steadily to $2.18! Yet maybe not so bad as there was a period between December 2015 and mid March 2016 when SCT shares were available sub $1.40. I hope some of you out there got some. The 2016 result has not yet been released. But it is already history, and it is now time to turn our attention to FY2017.
|
Divisional Profit (NPAT) |
Explanation |
Superconductor Magnets |
$0m |
(Increased sales offset by costly new HQ) |
Meat Industry Robots |
$6.400m |
(20% NPAT margin on $32m sales, equiv 4 big installations) |
Appliance Production Lines |
$2.099m |
(Mirror of FY2013 segment result based on $16.3m turnover) |
Mining Services |
$2.981m |
(Adjusted from FY2014 segment result based on $17m turnover) |
Robotworx USA |
$0.817m |
(From FY2014 acquisition year) |
Interest From Cash Balance |
$0.630m |
(based on 3.5% taxed at 28%) |
less Head Office Costs |
($3.500m) |
(Unallocated FY2014 costs +30%) |
Total |
$9.427m |
(addition) |
With 74.788m shares on issue this gives a projected 'eps' of 12.6cps
At $2.18, SCT is on a projected PE ratio for FY2017 of 17.3.
That sounds reasonable, although there must be some execution risk and currency headwinds (we have really gone up against Australia) to overcome. So maybe the huge run up in share price made by Mr Market is justified? I guess time will tell!
More information is available subsequent to the FY2016 result being declared. I will add to that my own sleuthing on likely contributions from RobotWorx and MAR earlier this month. So what is my best guess for the outlook for SCT over FY2017 now?
|
Divisional Profit (NPAT) |
Explanation |
Superconductor Magnets |
$0m |
(Increased sales offset by costly new HQ) |
Meat Industry Robots |
$6.400m |
(20% NPAT margin on $32m sales, equiv 4 big installations) |
Appliance Production Lines |
$2.099m |
(Mirror of FY2013 segment result based on $16.3m turnover) |
Mining Services |
$2.981m |
(Adjusted from FY2014 segment result based on $17m turnover) |
RobotWorx USA |
$1.309m |
(From my post 593) |
MAR Australia |
$0.845m |
(From my post 595) |
Interest From Cash Balance |
$0.739m |
(based on 3.0% of $34.244m taxed at 28%) |
less Head Office Costs |
($3.515m) |
(Unallocated FY2015 costs) |
Total |
$10.858m |
(addition) |
(Note: I have used FY2015 heads office costs are these are not corrupted by the JBS takeover one off effects.)
With 74.788m shares on issue this gives a projected 'eps' of:
$10.858m / 74.788m = 14.5cps
At $2.60, SCT is on a projected PE ratio for FY2017 of:
$2.60 / $0.145 = 17.9
A PE of 17.9 generally implies a 'growth premium'. Given:
1/ the long pipeline of JBS work ahead (provided the proven lamb carcass robotics can be successfully adapted to beef), AND
2/ the continued progress of the superconductive magnet business, which should eventually make a contribution to the bottom line.
THEN that $2.60 share price looks reasonable, if no longer a bargain. There is still the possibility of a capital return too, if management can't find a good use for the proceeds of their last capital raising. I still can't think of another growth share, except perhaps Skellerup, listed on the NZX that I would rather own.
SNOOPY
discl: hold SCT and SKL