SCT - Scott Tech

[Snoopy]

JBS want out?

Nothing like a “strategic review” and mention of Macquarie to start speculation

http://nzx-prod-s7fsd7f98s.s3-websit...070/396514.pdf

"Auckland, New Zealand: Scott Technology Limited (NZX: SCT) advises that after discussions with majority shareholder JBS (which owns 53.05% of the Scott shares), it intends to undertake a strategic review of its ownership structure, with a view to exploring options to maximise value for all shareholders. Scott has engaged Macquarie Capital as financial adviser to assist with the strategic review."

"maximse value for all shareholders" = look for someone to takeover the whole shebang?

Seeing Balance's comment above, maybe it is a euphemism for: "minimising capital losses for all shareholders." ?

JBS, which hold's their Scott shares through their Australian arm, can't sell their 53.05% holding in one lot, without triggering a takeover offer for the whole Scott company. I remember the special meeting prior to JBS taking their controlling stake late in 2015. Brent Eastwood, originally from Invercargill, the CEO of JBS Australia (he is still there ) was very adamant that JBS wanted 'control' of Scotts. I recall a miserable independent valuation of the company at the time that allowed them to do this cheaply. So I think a profit is on the table for JBS now if they do want out.

Here is a link to the Q1 2023 JBS institutional presentation

https://api.mziq.com/mzfilemanager/v...87d18?origin=1

Slide 11 shows JBS Australia's first quarter EBITDA plunging by 80%. So in NPAT terms they may be making a loss. There is a new CEO at JBS USA.

https://www.globenewswire.com/news-r...s-New-CEO.html
"27-04-2023: Wesley Batista Filho, with more than 13 years of experience in the company, will assume the role of CEO of JBS USA."

I think it is JBS USA that controls JBS Australia. So perhaps a new broom is sweeping up things? Slide 18 confirms the whole group has now been plunged into a loss making situation for the quarter. Operating cashflow for the quarter at JBS group looks an absolute shocker. Comparing the operating cashflow of Q1 FY2022 to Q1 FY2023: R$403 -> -R$3,043 (1 Brazilian Rial is currently worth $US0.21). So a $US700m negative cashflow turnaround for the quarter year on year.

Short term debt repayments due amount to $US1,948m (slide 20). The same slide shows 78% of debt funding is via company bonds. Interest rates are on the way up. Average cost of funding debt is already 5.87% per annum. I can see why JBS might be interested in raising some cash. But Scott's market cap at $2.75 per share is only $NZ223m, with the JBS share of that worth $NZ118m. Seems 'small beer' within the greater JBS beer keg?

SNOOPY

[kiwikeith]

I can see why JBS might be interested in raising some cash. But Scott's market cap at $2.75 per share is only $NZ223m, with the JBS share of that worth $NZ118m. Seems 'small beer' within the greater JBS beer keg?

SNOOPY

It may be small beer but as a chinese guy once said 'A journey of a thousand miles begins with a single step"

[Snoopy]

JBS share price down 45% in the last year and lost $500m NZD in the last quarter. Markets a bit tough at the moment....

SCT lead the NZX market today with shares up 9.1% to $3 on good volume (for Scotts anyway) of 63,642 shares. Buyers are still there at that price, with sellers holding out for $3.05.

SNOOPY

discl: holding

[winner69]

Mr Main from Jarden ’noted that the market had reacted surprisingly positively towards the announcement’ …end of day market wrap in media

Seems some/many think a full takeover on cards?

[Mel]

Next parcel of shares is for sale at $3.47!!
What to do with my small parcel of shares?

[Snoopy]

Next parcel of shares is for sale at $3.47!!
What to do with my small parcel of shares?

The price of Scotts is very much liquidity driven. Some other seller has since jumped in and said that $3.42 is enough. Whether they will get $3.42 is another question entirely! Price is up today another 5% to $3.15 as I write this. My records show adjusted normalised earnings for FY2022 of 16.9cps with the outlook for FY2023 flattish. So at $3.15 SCT are trading on an historical PER of: 315/16.9= 18.6. Not cheap but not expensive either. You have to go back to FY2016 to find Scotts trading on an historical multiple as low as 18.6 (excluding the outlier Covid-19 year of FY2020 that is). Even at $3.47, the historical PER is only 20.5, well within the normal range I might expect for this 'growth' share.

Scott's has always been a 'gunna' share, with the next year being when something surprising in a good way is 'gunna' happen. FY2024 is the year when the chicken trussing machine is 'gunna' take off. With the US trade show interest, that seems more believable than some the past dreams. If you are frustrated with broken past dreams, somewhere around $3.50 might be a fair exit point. But if you 'believe the story' I would say no harm in staying invested to see what is 'gunna' happen. I am sticking with my own Scott's holding 'as is' for now.

SNOOPY

PS Now buyers at $3.16 and sellers at $3.25

[Mel]

The price of Scotts is very much liquidity driven. Some other seller has since jumped in and said that $3.42 is enough. Whether they will get $3.42 is another question entirely! Price is up today another 5% to $3.15 as I write this. My records show adjusted normalised earnings for FY2022 of 16.9cps with the outlook for FY2023 flattish. So at $3.15 SCT are trading on an historical PER of: 315/16.9= 18.6. Not cheap but not expensive either. You have to go back to FY2016 to find Scotts trading on an historical multiple as low as 18.6 (excluding the outlier Covid-19 year of FY2020 that is). Even at $3.47, the historical PER is only 20.5, well within the normal range I might expect for this 'growth' share.

Scott's has always been a 'gunna' share, with the next year being when something surprising in a good way is 'gunna' happen. FY2024 is the year when the chicken trussing machine is 'gunna' take off. With the US trade show interest, that seems more believable than some the past dreams. If you are frustrated with broken past dreams, somewhere around $3.50 might be a fair exit point. But if you 'believe the story' I would say no harm in staying invested to see what is 'gunna' happen. I am sticking with my own Scott's holding 'as is' for now.

SNOOPY

PS Now buyers at $3.16 and sellers at $3.25

Thanks for your insights Snoopy, much appreciated. I understand the liquidity concept, my dilemma is that there are a number of stocks in my portfolio that I've not exited (at a tidy profit) and then subsequently regretted due to a decline in the share price - don't want SCT to be another to be in this category!!

[Snoopy]

Thanks for your insights Snoopy, much appreciated. I understand the liquidity concept, my dilemma is that there are a number of stocks in my portfolio that I've not exited (at a tidy profit) and then subsequently regretted due to a decline in the share price - don't want SCT to be another to be in this category!!

Price is what you pay. Value is what you get. Prices change every day, you can check what is happening every day on the market. But value is changing every day as well, it is just not so easy to see. How does all this relate to your post?

I will tell you my own SCT sad story, (which isn't really that sad). In January 2023 I bought a small parcel of SCT shares to add to my hoard priced at $2,50. As soon as I got the contract note I had 'buyers regret'. Why? Becasue seven years earlier in 2016 I had sold exactly the same number of shares for $2.10. How stupid I felt! There I was back in 2016 selling those SCT shares (albeit for a profit), and now -seven years later,- I was having to pay more money to buy those same shares back at a higher price. I would have been much better not to have done either transaction, (as I had also missed out on all of those dividends along the way), and just kept the original shares!

But then I thought again.......

When I sold in 2016, JBS had only just come on board. The European packaging side of the business, which turns over almost half the company';s revenue had not been bought. Neither had the AGV business in the USA - Transbotics. And Robotworx, now a discontinued operation was still the star turn in the USA. IOW what shares I bought in 2023 belonged to a very different business than that represented by the shares I sold in 2016.

I suspect a similar dilemma may be being faced by you Mel. Namely that the shares you did not sell 'back then' are approaching the price you didn't sell for 'back then' right now. The factor you have to consider is that the value of the company has changed over time. So the decision to sell today should be made when 'price today' exceeds 'value today'. "Price yesterday;' is just an historical figure based on 'value yesterday' which is also historical. Those two latter figures are best forgotten, even though it is psychologically hard to do so.

SNOOPY

[Mel]

Price is what you pay. Value is what you get. Prices change every day, you can check what is happening every day on the market. But value is changing every day as well, it is just not so easy to see. How does all this relate to your post?

I will tell you my own SCT sad story, (which isn't really that sad). In January 2023 I bought a small parcel of SCT shares to add to my hoard priced at $2,50. As soon as I got the contract note I had 'buyers regret'. Why? Because seven years earlier in 2016 I had sold exactly the same number of shares for $2.10. How stupid I felt! There I was back in 2016 selling those SCT shares (albeit for a profit), and now -seven years later,- I was having to pay more money to buy those same shares back at a higher price. I would have been much better not to have done either transaction, (as I had also missed out on all of those dividends along the way), and just kept the original shares!

But then I thought again.......

When I sold in 2016, JBS had only just come on board. The European packaging side of the business, which turns over almost half the company';s revenue had not been bought. Neither had the AGV business in the USA - Transbotics. And Robotworx, now a discontinued operation was still the star turn in the USA. IOW what shares I bought in 2023 belonged to a very different business than that represented by the shares I sold in 2016.

I suspect a similar dilemma may be being faced by you Mel. Namely that the shares you did not sell 'back then' are approaching the price you didn't sell for 'back then' right now. The factor you have to consider is that the value the company has changed over time. So the decision to sell today should be made when 'price today' exceeds 'value today'. "Price yesterday;' is just an historical figure based on 'value yesterday' which is also historical. Those two latter figures are best forgotten, even though it is psychologically hard to do so.

SNOOPY

Great post, thanks Snoopy. Yes, you've captured my dilemma - I will only add that the market is pricing some shares at a price that I THINK is widely disparate from the value I POSTULATE. In short, the market is much more fickle than it was 5 years ago and sometimes there is no rhyme or reason as to the share price movements (and the global factors much more complex) - and no guarantee that the price will 'come right' in years to come.

[BlackPeter]

Great post, thanks Snoopy. Yes, you've captured my dilemma - I will only add that the market is pricing some shares at a price that I THINK is widely disparate from the value I POSTULATE.
...

Don't we all? We all buy a share if we think it is more worth than the current market price (i.e. the market undervalues it), and we all try to sell it if we think the market overvalues it - and hope market will at the end come to reason and follow our superior reasoning.

The inherent problem: the market is a herd of individuals (some of them smarter and some of them dumber than us) who all have different view points. Obviously - none of them (no matter how clever) is able to predict the future (which would be essential to determine the earnings value of any company).

So - its all about guesses and gut feelings mixed with lots of (sometimes right and often wrong) extrapolations. Sometimes we are right and sometimes others ("the market") are.

...

In short, the market is much more fickle than it was 5 years ago and sometimes there is no rhyme or reason as to the share price movements (and the global factors much more complex) - and no guarantee that the price will 'come right' in years to come.

Yes, we used to have a long bull market, didn't we? Anything which moved was pushed up. Clearly - these days markets are often more careful, though it appears the tide is turning again. What you are describing is basically the cycles of GREAD (controlling the markets some years ago) and FEAR (the last 18 months or so).

This is the only thing you can rely on ... too much GREAD results in bubbles which burst creating fear, resulting in low prices creating GREAD.

Not sure this helps, but what I try to say is - market moods do change, and a "fickle" market is typically not the best time to sell.

If you think Scott is in principal a good company and has a good future (I know, nobody can predict that) ... then the time to sell is probably not now. Wait for a time when you really feel strong about holding this amazing company and even your shoeshine boy and your bowling friends recommend to buy more. This would be the time to sell.

Obviously - all coming with the usual disclaimers and adding that shares with such a limited liquidity are still more difficult to time then others.