SCT - Scott Tech

[Under Surveillance]

With the share price falling over 34% in the past year it appears a lot of share holders are not prepared to wait.
We may see SCT trading at a more modest PE of 10 or 12.
Would appear Fisher Funds announcement that they had brought into SCT on 4/4/2013 shows bad timing on their part,unless they don't mind waiting for years!!!!!.
Interesting to see that while SCT is down over 34% in the past year our Heartland are up over 31%.!!!!!!
Big difference.$1,000 in SCT now $660.00 while $1,000 in HNZ is now $1,310.So you would be twice as well off by being in HNZ.
Disc.Hold no SCT,but enjoy holding HNZ.

In fairness to Fisher Funds, their SCT holding came as the bad with whatever was the good when they bought out the TWR component previously run by Stubbs.
I've been waiting for Snoopy to apply his penetrating analysis to SCT, a company into which he has deep insights (which would be a much more valuable pursuit, to him and others, than his obsessive attempts to find or magnify issues with HNZ).

[percy]

Thank you ,I forgot it was Tower who brought the holding.For some reason I thought it was Milford,but then when I checked I was surprised it was Fisher.Now I remember.
"Penetrating analysis" ? Yeah right.!! lol.

[Snoopy]

With the share price falling over 34% in the past year it appears a lot of share holders are not prepared to wait.
We may see SCT trading at a more modest PE of 10 or 12.

Yes I have noted the haircut that the SCT share price has taken. No news from the company to justify it, so we are forced to speculate. SCT have been growing their business in recent years largely around Rocklabs and a large part of that is supplying the gold mining companies. Many gold mining companies have been retrenching their activities of late. So maybe there is less demand for the sampling equipment that Rocklabs produce? There was more than a hint of that in the full year result to September 2013 with 'standard equipment' (mostly Rocklabs) sharply down and Appliance Line manufacturing sharply up. For those who just looked at the headline figure the overall profit picture was a flat result while the underlying picture at divisional level was anything but that.

However, I keep an eye on XRF Scientific which has become Rocklabs Aussie marketing partner. Not much sign of a reduction in share price there. So perhaps gold mining is holding up in Australia at the operating level after all? Without any announcement from the company it is difficult to say more. But these thinly traded shares are subject to getting their share prices pushed around a bit.

SNOOPY

[percy]

I note XRF's share price is only down 10.61% for the year.
SCT does not enjoy the steady cash flow of a retailer,utility or finance company,so the earnings will always be lumpy. A great deal of ducks to line up! You were right to sell down.Just hope you brought some HNZ?!!! lol.

[Snoopy]

I have noted the haircut that the SCT share price has taken. No news from the company to justify it, so we are forced to speculate. SCT have been growing their business in recent years largely around Rocklabs and a large part of that is supplying the gold mining companies. Many gold mining companies have been retrenching their activities of late. So maybe there is less demand for the sampling equipment that Rocklabs produce? There was more than a hint of that in the full year result to September 2013 with 'standard equipment' (mostly Rocklabs) sharply down and Appliance Line manufacturing sharply up. For those who just looked at the headline figure the overall profit picture was a flat result while the underlying picture at divisional level was anything but that.

My suspicions about a Rocklabs slow down have been confirmed

"The Directors of Scott Technology wish to advise that due to the fast changing environment we are experiencing, it is appropriate to provide a trading update."

"Scott Technology’s revenue line remains solid and our order book is at good levels, providing us with a level of comfort over our forward work situation. The rapid appreciation of the New Zealand dollar, combined with the continuation of the global slow down in the Mining sector, is having an impact on our margins in the short term.
The company continues to review its operations with a view to mitigating the risk of further New Zealand dollar appreciation."

Shouldn't affect the share price though, because revenues have held up and customers are happy. Or am I getting confused with Xero there?

SNOOPY

[percy]

No surprises there.!!!
"Shouldn't affect the share price." Yeah right!!!!! lol.

[Bobcat.]

This stock is again starting to look more attractive at these prices.

Soon after the US Equity markets hit the shoulder and self-correct again (yes, it's not finished) then I'll be looking to buy again into this well managed company. Next month?

[Snoopy]

This stock is again starting to look more attractive at these prices.

Soon after the US Equity markets hit the shoulder and self-correct again (yes, it's not finished) then I'll be looking to buy again into this well managed company. Next month?

Darn you Bobcat! I was just about to pick up some more SCT shares, then you alert everyone to the opportunity and blow it for me! No matter in the end. The SCT share price took a leg down today and I bought my shares after all.

So why buy 'in the downtrend'? Because SCT is so thinly traded it isn't possible to buy the number of shares I am after (even though it is only a minimumly economical parcel) at the price I want when the share price reverses. BUY into weakness and SELL into strength is the only practical way to handle any SCT investment. So far for me doing exactly that has worked very well, contrary to the experience of Phaedrus (very early in this thread) who tried doing the opposite and got burnt.

However, buying in a downtrend is not an objective of mine. It is only a natural result of my growth investment strategy, which is rather different to the way others do it. My preconditions for buying a growth investment are:

1/ Make sure of a potential profit rise of at least 40% being on the table.
2/ Buy on a dividend yield that means that even if growth fails, you will still get an income equivalent to what is on offer at the bank.

So how does this stack up when you are looking at investing in SCT today?

SNOOPY

[Snoopy]

My growth investment strategy, which is rather different to the way others do it. My preconditions for buying a growth investment are:

1/ Make sure of a potential profit rise of at least 40% being on the table.
2/ Buy on a dividend yield that means that even if growth fails, you will still get an income equivalent to what is on offer at the bank.

So how does this stack up when you are looking at investing in SCT today?

My first growth investment requirement is easily satisfied. SCT was trading around $2.70 just a few months ago. Nothing has fundamentally changed about the company since then. So buying at $1.90 or below satisfies my first requirement.

I don't know when the SCT share price will return to $2.70 of course. It may take years. But I am certain as I can be that as the currency and market for the products go through their respective cycles it will get there. The no term debt policy always ensures that SCT is exceptionally good at weathering the investment cycle.

Now the dividend requirement. Because the SCT business has been volatile in the past, I always consider what has happened over the last ten years so that I can gauge a full business cycle picture. Complicating this picture was the acquisition of Rocklabs in FY2008, which was bought in a shares and cash deal. In recent years Rocklabs has been the star in the SCT investment portfolio. So any 10 year assessment of the SCT portfolio wouldn't be correct without factoring in Rocklabs. But it was a private company in FY2007 and before, so no earnings figures are available for those periods. We do know the first years segmented profit for Rocklabs was some $700,000. So I have assumed an average profitability level of some $500,000 for the years 2003 to 2007 inclusive. I have also assume that half of that profit would have been available to pay out as dividends over those years. Based on the number of SCT shares on issue during FY2007 (24,964m) this conveniently works out as a dividend of 1c per share.

Now to deal with the elephant in any SCT investment pie. By the end of FY2013, the number of SCT share on issue had ballooned to 41,122m. That means it would be misleading to look at previous years dividends in terms of dividends per share, because the number of shares today is so much higher. The solution is to apply a 'scaling factor' for previous year's dividends, so that dps in today's number of shares terms is recognized.

A sample calculation:

The 2010 dividend paid was 5.25cps. The number of shares on issue just after the time of the FY2010 result was 31,322m. So the equivalent dps for FY2013 was:

5.25c x (31,322m/41,122m ) = 4.0cps

Thinking of it in another way scaling factor on the 2010 5.25c dividend works out at

31,322/41,122 = 0.7612

OK there is the method. So how does this business cycle dividend yield model work out in practice?

SNOOPY

[percy]

Total number of SCT shares traded so far today. 23,001.Total value $40,154.
First sale was $1.77.Last sale was $1.71.Seller still there at $1.71 with 7236 for sale.One buyer for 750 shares at $1.60.
No comment.!!!!!