SCT Chart

[Snoopy]

quote:Originally posted by duncan macgregor
SNOOPY we agree on something at last at least things will come right if the dollar drops. The dropping dollar is the buy signal for this company, and all the other manufacturing, and export companies. A company like this with an engineering skill base where the labour content exceeds the material imput, will trend up as the dollar trends down. Until that happens stand well clear. MACDUNK

Just to add a bit more here. The currency exchange rate you need to watch is NZD vs the Euro. Why? Because Scott's two competitors are based in Spain and Italy. So even though the jobs Scott's quotes on are generally quoted in USD, Scott's competitors costs are in Euro. The NZD vs Euro exchange rate is therefore a good measure of the relative competitiveness of Scott Technology. And in this game 'relative competitiveness' is what is most important.

There is one rider to this 'rule of thumb'. The US household consumer goods market needs to have a buoyant outlook. Why? Because even the appliance factories based in China, where Scott's have an office now, are largely built to service the US market. A buoyant US household, and household replacement market, is a prerequisite for appliance manufacturers worldwide to invest in new appliance designs that will require the new production lines built by SCT.

I don't agree with Macdunks 'stand well clear' comment though. This company is in no danger of going bust - it has no long term debt. The safest investment returns are usually obtained when buying in gloom. By the time the exchange rate turns around with SCT, you may well have given away the easy profit if you own no shares. I prefer 'buy now and wait' rather than trying to time any dollar correction. The dollar correction may come in two years time or it may come tomorrow. Boarding the investment train now is the only guaranteed way to be on it when 'locomotive New Zealand' rolls out of the station. Scott Technology is too thinly traded to guarantee that you can simply 'jump on' at a sensible price when the train starts moving.

SNOOPY

[Snoopy]

Scott Technology is too thinly traded to guarantee that you can simply 'jump on' at a sensible price when the train starts moving.
SNOOPY

Today is an example of what I mean. Scott Technology up 17% today (or 31c) on the back of the latest result. I have run my thumb nail over the figures:

Eps of 12.2cps good, but really only bringing us back to 2002 when eps amounted to 12.4cps.

ROE being $3.042m profit on $18m of shareholder capital is 16.9%. Quite acceptable. Dividend yield (gross) based on the announced annual dividend of 9cps is 6.2%, based on the closing share price of $2.15. Not bad, but not a great bargain either.

All in all, I don't think too much money will be made by jumping into SCT at $2.15, which is why I jumped in several months ago.

There are a couple of comments in the written result that I wanted to comment on:

"Expansion of our target market into Europe, in particular, is producing good prospects and will assist in meeting the challenge of a volatile exchange rate in our US dollar denominated
markets."

I take this as a signal that Chairman Marsh won't be spending huge amounts of time at the AGM whinging about the NZD strength relative to the USD, yet again ;-P. But the above quote is more a statement of hope than cashflow. Targets still have to be hit before you score points on the board!

"The high value of the NZ dollar in relation to the US dollar remains a concern but the company is in a position to offset some of this affect by additional marketing in the Euro zone, improved cost control, and by utilising global markets to improve manufacturing efficiencies. Scotts have positioned an additional executive in China to increase the effectiveness of their offshore purchasing."

'Offshore purchasing' is what was promised as a cost controller last year. It is good to see some positive movement on this. It looks like new CEO Hopkins is making his presence felt.

SNOOPY

discl: hold SCT

[duncan macgregor]

SNOOPY, You have me whacked why you persist trying to turn a sows ear into a silk purse. Lets take a look at the fundamentals from a straight out investment point of view since any self respecting TA investor would not touch them with a barge pole. The last four oct prices for starters.2007 $2-20, 2006 $2-40, 2005 $2-20, 2004 $3-40. as you can see the sp is a disaster. Dividend yeild last year was 2.73%, [ the bank beats that]. The number of shares traded is pathetic if a crash comes you are a sitting duck. Give me one good fundamental reason why you or anyone else would buy into a company with that record of return?. Macdunk

[Phaedrus]

As a long-term Buy and Hold "investment", this stock has been a particularly poor performer - the current shareprice is around what it was 10 years ago!

On lightly traded stocks like SCT, the activity of "smart money" is very obvious when you look at the On Balance Volume indicator. Big buyers have moved in 4 times over the last 10 years - this activity appears as sudden vertical "steps" in the OBV. (Circled in green). The corresponding shareprice entry points are marked on the price plot by green arrows. You can easily see that without exception these entries have been made when SCT was particularly weak, and that without exception these entries have been followed by steep uptrends. As entry points into SCT, they could hardly be bettered.

While SCT has been an appalling long-term "Buy and Hold" candidate, take a look at the difference a slightly more active approach makes. Using the OBV entry points and selling at the trendline breaks (red arrows) just 3 trades in 10 years would have given returns of 50%, 300% and 15% - a five-fold gain.

[Snoopy]

As a long-term Buy and Hold "investment", this stock has been a particularly poor performer - the current shareprice is around what it was 10 years ago!

Ten years ago I held this share and the share price was around $2.20 - the same as Friday's closing price. However, that historic figure is misleading as there have been two 1:8 bonus issues along the way. So the correct comparative price from ten years ago is $1.74. Also the dividends paid in that time anount to 69.5cps. That means the investment picture is not as bleak as Phaedus paints. It still isn't great though. By my calculations our 'buy and hold' investor has made 5% per annum compounding. That is a gross return of 7.5% per annum compounding.

On lightly traded stocks like SCT, the activity of "smart money" is very obvious when you look at the On Balance Volume indicator. Big buyers have moved in 4 times over the last 10 years As entry points into SCT, they could hardly be bettered.

I will let you guys into a little secret. I was buying shares last Thursday as the share price was jumping. So I guess by definition that makes me 'the smart money' this time. Of course having been a shareholder, albeit in a small way, since 1997, perhaps you are thinking I am not so smart?

While SCT has been an appalling long-term "Buy and Hold" candidate, take a look at the difference a slightly more active approach makes. Using the OBV entry points and selling at the trendline breaks (red arrows) just 3 trades in 10 years would have given returns of 50%, 300% and 15% - a five-fold gain.

I certainly can't claim to have made a five fold gain! Of course to some extent such a gain is theoretical because it relies on you being able to buy and sell all the shares you need at the chart quoted prices. With a thinly traded share like SCT this can't be done in any meaningful volume.

However, I have on paper made around 150% on my SCT investment over ten years. Not an absolutely outstanding result, but not too bad either. Naturally I have not been merely buying and holding. I have also not been following the principles of Warren Buffett who would not have bought this share at all. So what is my secret?

I have been 'buying on weakness' when my capital becomes available. I calculate I have made an average gain of 12.3% compounding per annum over the last ten years.
That is equivalent to an 18.4% gross return. Furthermore most of my investment in SCT has been over the last two years where my returns have been higher than the figures quoted.

All in all, this is an investment that I am happy with. I sure hope Phaedrus is right and a period of rich reward for shareholders awaits. But I won't be buying more SCT shares at $NZ2.20 just yet. Is that smart or what?

SNOOPY

PS hold SCT,and bought some more on Thursday at $2.

[duncan macgregor]

SNOOPY, When you buy into dog comanies like this then average down over the years you have not only lost opportunity but lost money. Money devalues each year. The price of your house has doubled in the last ten years, after doubleing in the previous ten years.
If you are a long term investor, you require a monetry gain of 10% to even stand still, thats if you are saving up to buy a house. By having no sell system then averaging down gives you more and more, of less and less, until you work that one out, you will always underperform the market. Macdunk

[Phaedrus]

I was buying shares last Thursday as the share price was jumping, so I guess by definition that makes me 'the smart money' this time.........

Close, Snoopy, but no cigar I'm afraid!

The OBV spike "Buy" signal was on 28/9/07, nearly 3 weeks before you bought on 18/10/07. The smart money got in at $1.86 - $1.87. Close followers of SCT then had weeks to emulate this entry at prices ranging from $1.82 if they were lucky to $1.90 if they were not. This is clearly shown on a larger scale chart, as posted below.

So, you bought at $2 on Thursday eh Snoopy?
Right on the break of the confirmed trendline!
I'm so proud of you!

[Placebo]

MacDunk I think the value of my house doubled in about 7 or 8 years, but that's a bit of useless trivia since I can't sell off bits of it or sub-let the windows and doors. The frickin thing is still sucking up money and now this summer will be spent with a paintbrush in hand, all worth it though to get the wife off me back...

[duncan macgregor]

MacDunk I think the value of my house doubled in about 7 or 8 years, but that's a bit of useless trivia since I can't sell off bits of it or sub-let the windows and doors. The frickin thing is still sucking up money and now this summer will be spent with a paintbrush in hand, all worth it though to get the wife off me back...

Sell the bloody thing PLACEBO, buy a brick and tile. Never mind your missus growling, just think it might have been worse like renting, and investing in SCT. She wouldnt be growling she would have taken off. Think about poor SNOOPY trying to defend himself with his investment of SCT to his missus you got no worries mate. Macdunk

[Snoopy]

Close, Snoopy, but no cigar I'm afraid!

The OBV spike "Buy" signal was on 28/9/07, nearly 3 weeks before you bought on 18/10/07. The smart money got in at $1.86 - $1.87. Close followers of SCT then had weeks to emulate this entry at prices ranging from $1.82 if they were lucky to $1.90 if they were not. This is clearly shown on a larger scale chart, as posted below.

I guess that explains why I'm not feeling smart then. I was out of the country when those 'smart guys' were doing their business. Curiously most of the action seems to have come from Walker Capital Management selling down their holding in the company, now down to 7.09%. However, checking up in last year's report I can't see Walker Capital Management as a substantial shareholder. So perhaps they were just short term fly by nighters looking for the quick buck that didn't materialise?

I actually had a buy order in at $1.81 recently, but I was unfortunately just too mean to pick up any shares :-(.

So, you bought at $2 on Thursday eh Snoopy?
Right on the break of the confirmed trendline!
I'm so proud of you!

Don't be too proud of me Phaedrus. I haven't changed my spots and no doubt you will take my gold star away when I fail to sell when the trend breaks back the other way!

SNOOPY