SCT - Scott Tech

[Walter]

Hi Snoopy, we have chatted at a AGM in Dunedin. The food is usually good. I think I got some of mine when they spun out of Donaghys in 1997.
Somewhere in the basement I have better records. I just took the price info off a chart in 2004 investment yearbook (Access brokerage, since deceased). I have definite memories of it being in the 80s around then. For what it's worth Jarden tells me I paid 60cents at some stage. It has always been cyclical, so I'm tempted to trim while the going is good. I almost gave in when they gifted the company to the Brazilians....thanks for your analysis back then.

[Snoopy]

So if one bought $1,000 worth of SCT shares in March 2001 at $1.65 what’s that worth now?

Including bonus issues and reinvested divies the answer is $X (or if easier just add the $ value of divies on at the end)

I think the easiest way to solve this problem is to look at what happens to one share and derive what happens to $1,000 worth of shares from that.

The 'dividends per share' are laid out in the table below. Bonus Shares increase the 'dividend per share' purchased on 31st March 2001 'forever after' for no more capital outlay. I adjust for this by using a 'dividend growth factor' which shows 'per share dividend growth' from the base date the investment started. A similar adjustment is made for 'Rights issues'. However, in the case of a 'Rights issue' a cash outlay is made, and this must be subtracted from the overall return.

Winner, you asked for the divvies to be reinvested as we go. I think I know why you asked for that, because this is how the NZX50 return is calculated. And for a direct comparison to NZX50 returns, I should calculate the overall investment return this way. There has been a stopped and started DRP scheme which allows shareholders to do this. But such a scheme has not been available for the entire 21 years under study. Furthermore prior to the arrival of the likes of Sharsies, it would not have made economic sense to reinvest dividends unless you were a very large shareholder. So I am not going to grant this part of your request. If I had done so, the return I would have calculated would be slightly greater than the return I have calculated.

Scott Technology 21 year dividend history (per share)

Financial Year	Net Dividend (Final + Interim)	Dividend Growth Factor	Adjusted Dividend (Factored & Summed)
FY2001	2.0c+1.5c	1.0	3.5c
FY2002	8.0c+3.0c	1.0	11.00c
FY2003	8.0c+6.0c	(9/8)x(9/8), (9/8)	16.88c
FY2004	7.0c+6.0c	81/64	16.45c
FY2005	0c+4.0c	81/64	5.06c
FY2006	3.0c+0c	81/64	3.80c
FY2007	6.0c+3.0c	81/64	11.39c
FY2008	0c+0c	81/64	0c
FY2009	1.0c+0c	81/64	1.27c
FY2010	4.0c+1.25c	(11/10) x (81/64)	7.31c
FY2011	5.0c+2.0c	(5/4)x(891/640), 891/640	11.49c
FY2012	5.5c+2.5c	4455/2560	13.92c
FY2013	(5.5c+2.0c)+2.5c	4455/2560	17.40c
FY2014	5.5c+2.5c	4455/2560	13.92c
FY2015	5.5c+2.5c	4455/2560	13.92c
FY2016	5.5c+4.5c	(9/8)x(4455/2560), 4455/2560	18.60c
FY2017	6.0c+4.0c	40095/20480	19.58c
FY2018	6.0c+4.0c	40095/20480	19.58c
FY2019	3.62c(PI)+4.0c	40095/20480	14.92c
FY2020	0c+0c	40095/20480	0c
FY2021	2.88c(NI)+1.44c(NI)	40095/20480	8.46c
Total			208.81c

Notes

1/ Final dividend for FY2019 of 4.0c only partially imputed to 65.75%.
2/ Final 4.0c and interim 2.0c dividend for FY2021 not imputed.
3/ 1:8 bonus issue made immediately following FY2002 final dividend.
4/ 1:8 bonus issue made immediately prior to the FY2003 final dividend.
5/ 1:4 rights issue offer at $1.20 per share made and shares issued (04-08-2011). This implies a one off capital adjustment downwards of $1.20/4 = 30c per share. However the per share figure has to be corrected for the difference between the number of shares on issue at the time this exercise started and the number of shares on issue at the time the cash issue was made. 30cps x 891/640 = 42cps
6/ 1:8 rights issue offer at $1.39 per share made and shares issued (14-04-2016). This implies a one off capital adjustment downwards of $1.39/8 = 17.38 cps. Once again we have to correct for the number of shares on issue at the time the cash issue was made 17.38cps x 4455/2560 = 30cps

From my post 984, the number of shares on issue has increased in total from an existing shareholder perspective over 21 years by a factor of:

1/ 0.5108 = 1.958

The share price at the start of the study period was $1.65 and at the end $3.58.

This means the total increase in value per share (including dividends) over the study period was:

($3.58 x 1.958) - ($1.65) + $2.09 - ($0.42 + $0.30) = $6.73

We can therefore calculate the compounding rate of return over 21 years as follows:

$1.65(1+i)^21 = ($1.65+$6.73)

=> (1+i)^21 = 4.079
=> i = 1.069

This means the total compounding return for SCT investors over the last 21 years, who partook in the two rights issues, 'after tax' was 6.9% per year.

Now back to your specific...

...Question. What would $1,000 invested in SCT shares on 31st March 2001 be worth today?

Answer: $1,000 x ($1.65+$6.73)/$1.65 = $5,079

Would partaking in rights issue (adding to the $1,000) have made much difference?

The first rights issue was made at $1.20 and the second rights issue was made at $1.39. Considering all of those shares are now valued at $3.58 each, that has definitely added to the return. The second rights issue was 1:8. So 1/(1+8) = 1/9th of the shares at the end of the study period were affected. So the increase in shareholder value attributable to the second cash issue was:

1/9 ($3.58 - $1.39) = 24cps

That represents 24/673 = 3.6% of the gain.

The equivalent calculation for the earlier cash issue 1:4 at $1.20 would have been

(8/9) x [ 1/5($3.58 - $1.20)] = 42cps

This represents 42/673 = 6.2% of the gain

Add those two together and they account for nearly 10% of the gain. I think that is too large a fraction to ignore.

SNOOPY

[BlackPeter]

I think the easiest way to solve this problem is to look at what happens to one share and derive what happens to $1,000 worth of shares from that.

The 'dividends per share' are laid out in the table below. Bonus Shares increase the 'dividend per share' purchased on 31st March 2001 'forever after' for no more capital outlay. I adjust for this by using a 'dividend growth factor' which shows 'per share dividend growth' from the base date the investment started. A similar adjustment is made for 'Rights issues'. However, in the case of a 'Rights issue' a cash outlay is made, and this must be subtracted from the overall return.

Winner, you asked for the divvies to be reinvested as we go. I think I know why you asked for that, because this is how the NZX50 return is calculated. And for a direct comparison to NZX50 returns, I should calculate the overall investment return this way. There has been a stopped and started DRP scheme which allows shareholders to do this. But such a scheme has not been available for the entire 21 years under study. Furthermore prior to the arrival of the likes of Sharsies, it would not have made economic sense to reinvest dividends unless you were a very large shareholder. So I am not going to grant this part of your request. If I had done so, the return I would have calculated would be slightly greater than the return I have calculated.

Scott Technology 21 year dividend history (per share)

Financial Year	Net Dividend (Final + Interim)	Dividend Growth Factor	Adjusted Dividend (Factored & Summed)
FY2001	2.0c+1.5c	1.0	3.5c
FY2002	8.0c+3.0c	1.0	11.00c
FY2003	8.0c+6.0c	(9/8)x(9/8), (9/8)	16.88c
FY2004	7.0c+6.0c	81/64	16.45c
FY2005	0c+4.0c	81/64	5.06c
FY2006	3.0c+0c	81/64	3.80c
FY2007	6.0c+3.0c	81/64	11.39c
FY2008	0c+0c	81/64	0c
FY2009	1.0c+0c	81/64	1.27c
FY2010	4.0c+1.25c	(11/10) x (81/64)	7.31c
FY2011	5.0c+2.0c	(5/4)x(891/640), 891/640	11.49c
FY2012	5.5c+2.5c	4455/2560	13.92c
FY2013	(5.5c+2.0c)+2.5c	4455/2560	17.40c
FY2014	5.5c+2.5c	4455/2560	13.92c
FY2015	5.5c+2.5c	4455/2560	13.92c
FY2016	5.5c+4.5c	(9/8)x(4455/2560), 4455/2560	18.60c
FY2017	6.0c+4.0c	40095/20480	19.58c
FY2018	6.0c+4.0c	40095/20480	19.58c
FY2019	3.62c(PI)+4.0c	40095/20480	14.92c
FY2020	0c+0c	40095/20480	0c
FY2021	2.88c(NI)+1.44c(NI)	40095/20480	8.46c
Total			208.81c

Notes

1/ Final dividend for FY2019 of 4.0c only partially imputed to 65.75%.
2/ Final 4.0c and interim 2.0c dividend for FY2021 not imputed.
3/ 1:8 bonus issue made immediately following FY2002 final dividend.
4/ 1:8 bonus issue made immediately prior to the FY2003 final dividend.
5/ 1:4 rights issue offer at $1.20 per share made and shares issued (04-08-2011). This implies a one off capital adjustment downwards of $1.20/4 = 30c per share. However the per share figure has to be corrected for the difference between the number of shares on issue at the time this exercise started and the number of shares on issue at the time the cash issue was made. 30cps x 891/640 = 42cps
6/ 1:8 rights issue offer at $1.39 per share made and shares issued (14-04-2016). This implies a one off capital adjustment downwards of $1.39/8 = 17.38 cps. Once again we have to correct for the number of shares on issue at the time the cash issue was made 17.38cps x 4455/2560 = 30cps

From my post 984, the number of shares on issue has increased in total from an existing shareholder perspective over 21 years by a factor of:

1/ 0.5108 = 1.958

The share price at the start of the study period was $1.65 and at the end $3.58.

This means the total increase in value per share (including dividends) over the study period was:

($3.58 x 1.958) - ($1.65) + $2.09 - ($0.42 + $0.30) = $6.73

We can therefore calculate the compounding rate of return over 21 years as follows:

$1.65(1+i)^21 = ($1.65+$6.73)

=> (1+i)^21 = 4.079
=> i = 1.069

This means the total compounding return for SCT investors over the last 21 years, who partook in the two rights issues, 'after tax' was 6.9% per year.

Now back to your specific...

...Question. What would $1,000 invested in SCT shares on 31st March 2001 be worth today?

Answer: $1,000 x ($1.65+$6.73)/$1.65 = $5,079



The first rights issue was made at $1.20 and the second rights issue was made at $1.39. Considering all of those shares are now valued at $3.58 each, that has definitely added to the return. The second rights issue was 1:8. So 1/(1+8) = 1/9th of the shares at the end of the study period were affected. So the increase in shareholder value attributable to the second cash issue was:

1/9 ($3.58 - $1.39) = 24cps

That represents 24/673 = 3.6% of the gain.

The equivalent calculation for the earlier cash issue 1:4 at $1.20 would have been

(8/9) x [ 1/5($3.58 - $1.20)] = 42cps

This represents 42/673 = 6.2% of the gain

Add those two together and they account for nearly 10% of the gain. I think that is too large a fraction to ignore.

SNOOPY

Interesting stuff, and not a bad return.

The other obvious question would be - how would the SCT investor have done, if they would have put their money in March 2001 in e.g. MFT or FPH shares instead?

Or - maybe a fairer question ... how did a SCT investor fare compared to somebody who invested without any analysis just into the NZX50 (which includes dividends - i.e make the comparison easy ...).

I suspect MFT and FPH did spectacularly better, but I am now too lazy to add up the dividends. Looking at the (anyway more relevant) NZX50 comparison:

In March 2001 NZX50 index was 1986, currently it is sitting at 12970.

This would make the NZX50 in that timeframe to a 6.5 bagger - or in other words it returned 9% per year (all numbers rounded, I like slide ruler precision ) over these 22 years.

Looks like Scott slightly underperformed the NZX 50. Not spectacular, but not too flash either.

[Snoopy]

Interesting stuff, and not a bad return.

The other obvious question would be - how would the SCT investor have done, if they would have put their money in March 2001 in e.g. MFT or FPH shares instead?

Or - maybe a fairer question ... how did a SCT investor fare compared to somebody who invested without any analysis just into the NZX50 (which includes dividends - i.e make the comparison easy ...).

I suspect MFT and FPH did spectacularly better, but I am now too lazy to add up the dividends. Looking at the (anyway more relevant) NZX50 comparison:

In March 2001 NZX50 index was 1986, currently it is sitting at 12970.

This would make the NZX50 in that timeframe to a 6.5 bagger - or in other words it returned 9% per year (all numbers rounded, I like slide ruler precision ) over these 22 years.

Looks like Scott slightly underperformed the NZX 50. Not spectacular, but not too flash either.

My post was simply to answer Winner's question. I didn't wish to imply that SCT was the 'best pace to invest' over the last 21 years. So yes MFT and FPH may have been better places to put your dollar, if indeed they even existed as separate listed investable entities way back in 2001. SCT has also consumed a huge amount of my analysis time over the years on my behalf, because it hasn't been well covered by the brokers. Offsetting that I have previously disclosed that my average holding price is 73c, not the $1.65 that I assumed at the start of my analysis. The result of some judicious rebalancing of my holding over my holding period, to counteract the share price volatility. So I have obviously done rather better than the 6.9% compounding annual gain that I calculated in the analysis of our mythical 'buy and hold' investor's position. I have no regrets about my SCT shareholding over the years, and see my actual return as some payback for all the hard research I have put in. That is reading like an obituary. But I feel there are more profitable chapters in my relationship with SCT yet to play out.

One further point on the comparison with the NZX50. Mark Wheldon arranged that index so that all dividends were reinvested back into each share at the time they were paid. No one I know actually does this, so it really presents an unattainable picture that compounds to greater unattainability the longer the timeframe you use. I suspect a not insignificant part of the NZX50 outperformance is because of this effect.

SNOOPY

[winner69]

Pretty impressive half year for Scott

http://nzx-prod-s7fsd7f98s.s3-websit...222/368315.pdf

[percy]

Operating cash flow was $(8.8)m and net debt increased by $10.0m to $12.9m

[winner69]

Operating cash flow was $(8.8)m and net debt increased by $10.0m to $12.9m

The current trick of building up inventory levels in these tough supply chain times

[percy]

The current trick of building up inventory levels in these tough supply chain times

Add to the money going out is another approx $3.2 mil.for the divie.[4cents per share]
Just keeps on adding up.
Yes wise to keep inventory up,but it is costing an awful amount.

[winner69]

Add to the money going out is another approx $3.2 mil.for the divie.[4cents per share]
Just keeps on adding up.
Yes wise to keep inventory up,but it is costing an awful amount.

Scott never seem to generate much cash ……but continue to pay divies

[Sideshow Bob]

https://farmersweekly.co.nz/s/fw-art...AKe4I6V5qnIHH0