Thanks Percy, I was a bit in two minds but I have another use for the money at present so decided to sell too.
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Thanks Percy, I was a bit in two minds but I have another use for the money at present so decided to sell too.
Yes, a bit disappointing but the company remains profitable with a strong balance sheet and solid cashflows. I'll hold for now until I can find something better.
I am being very tough this result season.Any company that disappoints is sold straight away.However, any company that produces a result better than I thought I will buy.
PGW, whose result is not until the 26th of Feb, is the one I am waiting for.I have been looking to add to our holdings,so it will be interesting.
I expect HGH, due next Tuesday,and SPK, next Wednesday will not surprise.
I have had a quiet look at the half year annual report that arrived in my mailbox today. It was a clean result, but not quite enough to lift SKL into a 'must buy for Buffett' type investment. So I am back to valuing the company based on their dividend 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 and FY2020s unimputed dividends, those actually paid in the FY2019 and FY2020 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)
Year Dividends as Declared Gross Dividends Gross Dividend Total FY2016 5.5c+3.5c 7.64c + 4.86c 12.50c FY2017 5.5c+3.5c 7.64c + 4.86c 12.50c 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 Total 69.49c
Averaged over 5 years, the dividend works out at 69.49/5 = 13.9c (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. I think that given the trade wars and the inability of Skellerup to quickly move production from affected international production sites, I should not do this.
So based on my previously selected sought after 7.5% gross yield over an historic five year business cycle window, , 'fair value' for SKL is:
13.9 / (0.075) = $1.85
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: $1.85 x 1.2 = $2.22
Bottom of Business Cycle Valuation: $1.85 x 0.8 = $1.48
My target accumulation price is 10% below 'fair value', and that equates to $1.67.
SKL shares are trading at $1.59 as I write this (in the lower end of my expected valuation range) and as such are now undervalued by 14%. Is that a fair reflection of the company's prospects? Or has the price just been dragged down by general market malaise?
SNOOPY
discl: hold SKL
Pleasing business upgrade today.
I sold a few weeks ago,however I retain SKL on my watch list.
I was kinda expecting that they would have experienced some supply chain disruptions. I'm not sure if its good luck or good management that they haven't. From their update today:
"Key Points
o Skellerup facilities worldwide have been and continue to operate.
o Skellerup has and continues to advise and monitor its people to help them
protect themselves and families from the Covid-19 pandemic.
o Many Skellerup products are essential and non-perishable helping to ensure
safe food and water.
o Skellerup's businesses have to date not been adversely affected from
material supply chain interruptions and have been able to meet all customer
requirements.
o Skellerup expects end demand for some of its products may be impacted but
to date there are no material changes to our business or year to date
earnings for FY20. "
If they are basically trading on a similar trajectory to before, does this mean the majority of the circa 30% price decline recently can be put down to changing market risk premium's?
I think SKL was good buying yesterday.
May be even better today.?
Here is my take on the outlook for Skellerup from Mid financial year 2020.
Agricultural Division
The Agricultural division has performed very well with both Sales and EBIT up 5% in the just finished half year for FY2020. Recession or not, people still need to eat and farmers, in NZ at least, are actually doing OK, (behind their whinging about the Labour lead government coming waterway restrictions - that's OK farmers are allowed to whinge!). Skellerup is the second largest supplier of rubber-ware to the dairy industry worldwide, and around 60% of product manufactured in NZ is exported.
The NZ dollar decline will help farmers in the future too! However, there may be a few less 'Red Band' specialist forestry boots sold, offset by more sales of 'Skellerup Fire Fighter Extreme Boots' helping our firefighting friends in Australia.
Outside of NZ, the outlook for dairy is not ideal. From:
https://www.dairyaustralia.com.au/-/...port-final.pdf
"Dairy Global supply Situation Outlook
Milk production from key global dairy exporting regions has remained subdued. Seasonal and political headwinds in the European Union have seen milk production growth slow and US production remains sluggish."
"Australian industry Situation Outlook
Australian farmers have entered a season of record farmgate milk prices however milk production has continued to contract. High input costs and an ominous weather forecast for the balance of the year is weighing on sentiment and has seen an increase in culling."
It looks like NZ remains the bright spot for marketing 'Skellerup Agriproducts'.
Industrial Division
Industrials may be a bit more challenging. The main 'driveshaft coupling gig' is Skellerup's Italian Factory supplying the Chinese manufactured (for Chinese domestic consumption) "Mercedes Benz E-Class L" cars. Sales figures to the end of January 2020 are here:
https://carsalesbase.com/china-car-s...-benz-e-class/
CY2019 was a record year for this model in a year where auto sales in China were under pressure. January 2020 sales were a bit down and this was before the ramp up of the Coronavirus problems in China and subsequently Italy. Car sales in China are reported to be down 90% in February 2020. So we might be looking at a short term headwind here, even if the underlying demand for the Chinese made Mercedes product looks sound. In addition, major Automakers in Italy, including Fiat, Ferrari and Lamborghini have closed their factories in response to the Italian government’s orders on March 11th to close commercial activities for two weeks. To comply with the law, the Skellerup factory in Italy must have also closed, yet no announcement was made. I see the Skellerup share price started its recent steep decline on Mach 11th - co-incidence? According to the market update today offered by Skellerup,
"Skellerup facilities worldwide have been and continue to operate." Hmmmm....
The heavy truck market in the US (the prime application for Skellerup's Masport branded vacuum pumps) has slowed and is expected to remain subdued over 2020 and 2021. Skellerup's pumps find application in both the portable toilet and septic tank industry and also the oil and gas market. The pumps are made in China (there is a 'Trump tariff cost' here), then integrated within systems within the United States.
https://www.fleetequipmentmag.com/ac...very-tempered/
The Gulf division supplies rubber componentry to US based tap and shower makers. The cuts to US interest rates should stimulate the US housing market. But high construction costs will keep housing affordability at bay for many, so new build sales are likely to be limited to about 10% of the market.
https://knowledge.wharton.upenn.edu/...arket-in-2020/
Gulf also supplies rubber sealing components for wastewater and fresh water piping. Although not sexy, with ageing infrastructure worldwide, this is a componentry application with ongoing demand, particularly in the United States..
'Deks', based in Australia, produces sealing and waterproofing products for roofing, plumbing and civil/underground applications. Building approvals plunged 15%
in January 2020 after a 4% rise in December 2019.
https://tradingeconomics.com/australia/building-permits
"This marked the steepest decline in building permits since a 22.1 percent fall in December 2017, mainly due to a 35.5 percent slump in approvals for private sector dwellings excluding houses. In contrast, building permits for private sector houses rose slightly by 0.3 percent."
Given that the time between issuing a building permit and work starting is typically six months, the outlook for Deks does not look good for HY2021. But the outlook for the remaining financial year to the end of June looks reasonably buoyant.
In the council market, the aging water pipe infrastructure replacement business, particularly in New South Wales, provides a steady base for the business.
Skellerup themselves in their March 16th 2020 press release say:
"At this stage we continue to expect FY20 NPAT to be consistent with the result achieved in the pcp.”
Looking further out, I think we will see a decline in FY2021. But if you look at the detail of my capitalised dividend valuation model, this decline is already priced into my valuation.
SNOOPY
discl: hold SKL
thanks Snoop!
SKL is a prime example of the skittish mood of today's markets. Shareprice up over 12% today.
:confused:
I sold out 3 weeks ago, my reason - will factories remain open as this crisis develops?
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COVOID 19 Correction - NZPA 21st March 2020 for urgent release
Following a review of Skellerups' trading update earlier in the week, CEO David Mair has released some urgent revisions. Mair is now aware that the way that some of his previous comments were expressed, may have been seen as 'misleading to the market'. Further clarification is required.
Mair noted that the Italian factory of rubber driveshaft components had in fact shut down for two weeks from March 11th, in accordance with Italian government COVID19 emergency law. But Skellerup was using the opportunity to conduct annual maintenance that is part of the normal business plan. In this sense it is 'business as normal', because a stockpile of driveshaft rubber componentry had been built up in anticipation of the annual shutdown.
Mair further clarified that the reported 90% drop in the Chinese car market in February 2020 was not yet reflected in Skellerup's accounts because supply components were ordered three months in advance. Thus although there was no sign of a drop off in Mercedes sales in China in Skellerup's figures, this is likely to change over the next few months. Furthermore the Mercedes-Benz E Class L platform that Mercedes Benz builds in China is not compatible with electrification. This means that sales are likely to be regulated downwards in the medium term as China seeks to implement tough new anti-pollution measures.
In the United States there has been a drastic fall in demand for the Skellerup Masport vacuum pump. The collapse in oil price has meant that shale oil production in the United States has now been either permanently shut down or indefinitely suspended. Consequently all US domestic purchases of road based oil tankers from US based primary producers have been halted. Furthermore, the announced suspension of all outdoor festivals in the United States means that demand from the portable toilet industry that uses their tankers, equipped with Masport vacuum pumps, to empty their portable toilets has also collapsed. While neither of these effects have been felt in the accounts period to date:
"We now expect a severe downturn in the vacuum pump business in FY2021." Mair said
Australia has been particularly badly affected with a sudden market downturn in commodities. This is likely to severely affect the private house building market as workers either lose their jobs, or are subject to much reduced working hours. Thus we expected the already depressed market for commercial and public sector building to be joined by a downturn in residential sector construction. Consequently the market for the DEKs roof sealing product that we produce in Australia, while holding up now, is likely to be severely affected.
In the United States, a house construction downturn is now expected as the whole wage and salary market contracts. Skellerup's 'Gulf Rubber Products', that supplies critical components to the domestic plumbing supply industry is now a forecasting 'a significant contraction in demand' into FY2021.
"While I am cautiously optimistic of the outlook for our Agricultural division products over FY2021, in the industrial division at least it is timely to remind shareholders that past performance is no guarantee of future performance."
Full confirmation and EBITDA quantification of all these projected market effects will have to wait until the first of next month. - ENDS -
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The above press release, early on Saturday morning, might yet have a serious affect on the SKL share price on Monday!
SNOOPY
Lest any SKL shareholders who consider selling their shares on Monday as a result of the "COVIOD-19 Correction" update, as reported by me, let me confirm that this "press release" is a hoax. There were several clues in there for those that read the so called "press release" carefully. It was ostensibly put out by the New Zealand Press Association. But that organisation has not existed since 2011. Secondly it was put out on a Saturday. Anyone who follows the market knows that market press releases are never put out on a Saturday. Finally the confirmation press release as regards "the EBITDA effects" of what was detailed, was to come out on April 1st. More fool anyone who believed that! If you did believe the 'press release" I am sorry to say that you have been scammed. So why did I go through this exercise?
In times of turmoil, there are scammers out there waiting to take advantage of you. So when you read something "on the markets", but not put out "by the markets" your BS meter should go on full alert. I was going to announce my "COVID-19 Correction" post as 'fake news'. But is it fake news? A scam will only work if it contains some truth within it. Looking through that 'fake press release', can you be sure that any of the information content in there is not true? Well, speculation often turns out to be not true. But I would argue that there is nothing in the content of that post that defies logic. Indeed it may all turn out to "all come true" after all, even though there is no admission from Skellerup at this point to that effect.
I managed to acquire some more SKL shares myself on Thursday, prior to the Friday price jump. I expect SKL earnings to be minimally affected over FY2020, as hinted at by the 'real' press release put out by David Mair last week. However, I do expect some deterioration in FY2021, from one or more of the effects I have highlighted in the 'fake press release'. My purchase of SKL shares last week, I have made assuming a modest decline in dividends over FY2021. My purchase was based on a 'business cycle' dividend yield and made at a particular price point that satisfied my dividend yield requirement. Thank you "Mr Market" for providing me with this opportunity.
SNOOPY
Phew, Snoops! Saved in the nick of time! Thank you for this heads-up!
Good news for SKL holders. The Mercedes car factory in China is back in business (Mar 26, 2020 article)
https://carbuzz.com/news/unlike-othe...vernment-money
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"Another vital factor currently working in Mercedes' favour is that it recently re-opened its factory in China and that demand has slowly but surely been increasing once again in the world's largest auto market."
" "The vast majority of our dealerships have reopened, the customers are returning," Kallenius confirmed. "Every day more people come to the car dealerships. Demand is picking up, which makes us optimistic." "
"Both the Mercedes-Benz E-Class and C-Class sedans are manufactured in China specifically for that market."
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SNOOPY