SCT - Scott Tech

[Snoopy]

Snoopy wrote:
"Care to name some names Mr Hog? How many years do you think it will be until Rakon recovers to their listing price? What about FPA and their enormous destruction of shareholder wealth by being caught out when moving their production lines offshore? FPH are doing OK but with a PE of 27 or something, that doesn't look a very good place to put my export money. Wellington Drive Technologies has an endless history of losses. Windflow Technologies have likewise never returned their shareholders any profits (because they are loss making)."

The hog was maybe a bit quick off the mark. How about "Keeping an eye on the technical side of things for your chosen exporters would be a consideration worthy of your time." ?

But yes, RAK and FPH have potential - in the right circumstances - to provide good capital growth.

The problem is Mr Hog, these are the same kind of thoughts that I was thinking about Scott Technology and Fisher and Paykel (as it was then, a combined group) in 1997.

I don't want to leave the wrong impression on this thread. I went into SCT for the purpose of receiving ever increasing dividend income through company growth and this objective has not been achieved. Am I content with this situation? No. Do I know of any listed exporter that has done significantly better over the past twelve years ? No

So what does this tell me? Do we have an 'exporter' problem? Is there something 'company specific' wrong with the way SCT has been managed over the last twelve years? Perhaps, although Chairman Marsh's low to no debt policy was a big help during the credit crunch. The direction of management has changed in the last couple of years so it is not as if the company is doing nothing. Whether it is doing enough remains to be seen.

I heard a representative of Rakon on the radio this morning bleating about the high exchange rate and how they are having to make more and more of their chips overseas. He didn't have any answers for what he wanted the government to do. But he admitted that as long as Rakon is just an 'input cost' on the the manufacturing sheets of large cellphone manufacturers, margins will remain under pressure. Needless to say I am not tempted to invest in Rakon.

SNOOPY

discl: hold SCT

[warthog]

Do we have an 'exporter' problem? Is there something 'company specific' wrong with the way SCT has been managed over the last twelve years?

Good questions, to be sure. However, you need not be too bothered with them if you follow the chart closely. The combination of a little contextual/local knowledge of these businesses and a solid technical approach to your entry/exit points will in the hog's opinion preserve your capital and give you a good chance at capital growth.

I heard a representative of Rakon on the radio this morning bleating about the high exchange rate and how they are having to make more and more of their chips overseas. He didn't have any answers for what he wanted the government to do.

Well the government doesn't have any ideas either so between the NZ business community and the government (something of an overlap there) there are basically no clues going forward other than hoping for an export-led recovery and having nightmares about having to use the OCR to dampen down any enthusiasm in the property market. The National government are stuck between a rock and a hard place, as not only do they not have any original thoughts about how NZ could get out of this mess, they are faced with some possible answers that are heresy to their supporters, such as capital gains taxes, heavier regulation and foregoing tax cuts.

Bill English recently appealed for any and all ideas and thoughts about what the country should do. The hog says if he has run out of ideas then maybe he should give somebody else a go?

Back to the issue, you need not worry much about these issues if you simply watch - for example - the RAK chart. The price action will tell you - more or less - when to get into this stock i.e. when its fortunes change. Until then, it's anybody's guess, which is why TA is the safer approach.

[Snoopy]

I am sure the price will come back to the 1.20s next week and I'll pick some up then.

Well you got your wish Pointyhat. I guess that is you sitting there at $1.21. I am pretty relieved there has been a correction though as this one had gone too far too hard on no news. The only question that remains now is, will you get your shares? Good luck!

SNOOPY

[Snoopy]

Well you got your wish Pointyhat. I guess that is you sitting there at $1.21. I am pretty relieved there has been a correction though as this one had gone too far too hard on no news. The only question that remains now is, will you get your shares?

Big pull back in SCT from the recent peak of $1.40, all the way down to the dollar mark, even if the volume of shares traded has been modest. Influencing that fall will be the somewhat lethargic response to the Silver Fern Farms shareholder cash raising. Without that cash on hand SFF will not be spending up big on SCT boning room robotics soon.

However ultimately the demand will not be going away. Those meat industry robots will be bought, it is just a matter of timing. SCT is strong enough to wait. In the meantime the market hands us an opportunity to pick up those SCT shares at a good price. I'll be waiting for the share price to head a little lower before I boost my own SCT holding. But I wouldn't blame others, like Pointy Hat, for having scooped up their own share of SCT, on the way down, so far.

SNOOPY

discl: hold SCT

[PointyHat]

Results out:
A profit and a dividend - although both very modest ($390,000 before tax and 1 cent)
It will be interseting to see how Rocklabs contributed !

Better than a loss however.
Time to buy Snoopy ?

[Snoopy]

Ultimately the demand will not be going away. Those meat industry robots will be bought, it is just a matter of timing. SCT is strong enough to wait. In the meantime the market hands us an opportunity to pick up those SCT shares at a good price. I'll be waiting for the share price to head a little lower before I boost my own SCT holding.

SCT full year result out today. And the result is ..(drum roll).. - a profit!

However, I am not too impressed with the tone of the announcement:

"The Directors of Scott Technology Ltd are pleased to report that the company
produced a profit before tax of $390,000...."

Companies that make a profit have to pay tax, as do shareholders as they receive dividends. So why not announce the after tax profit? That is:

$390,000 x 0.7= $273,000

or

$0.273m / 28.277m = 1c per share

"....on operating revenues of $31.3m million for the year ended 31 August 2009."

That revenue is, on the surface, quite creditable as last years company turnover was only $25m. However Rocklabs was only acquired on 1st April 2008. That means only five months earnings and revenues from Rocklabs was booked in the comparative FY2008 year. In FY2008 $9.2m in 'mining industry' revenue and $15.8m of 'Other Automation' revenue was booked. On an annualised basis that represents $22.1m in 'mining industry' revenue. That means on a 'like with like' comparative basis we might have expected FY2009 revenue of:

$22.1m + $15.8m = $37.9m

So only $31.3m worth of revenue, a drop of some 20%, indicates that SCT is hurting.

"The company is supported by a strong balance sheet with total assets of $35.4 million, cash on hand at balance date of $1.5 million and total bank loans of a modest $4.5 million."

Maybe, but with profits of only $0.273m per year, that debt would take:

$4.5m/$0.273m = 16.5 years to repay!

"A nominal dividend of 1.0 cent per share has been declared by the Directors in respect of the year ended 31 August 2009. This reflects the Directors' confidence in the growth and trading ability of the company, supported by the underlying strength of the company's balance sheet."

OK, but then look at the comments that follow:

"Recently the Australian Government has introduced fiscal incentives for Australian companies to invest in capital equipment. New Zealand is in need of such inducements that aid productivity increases."

Does that mean SCT is confident they will do well, *provided* the government comes to the party with subsidies?

"No commentary would be complete without mentioning the currency. As a manufacturing exporter the company is finding it increasingly difficult to contend with the volatility of the New Zealand dollar. Swings in the value of the New Zealand dollar relative to the US dollar have approached 45% in the last 12 months."

"Despite volatile trading conditions and uncertain economic times, management and staff continue to be successful in developing strategic relationships with customers in our niche markets."

That means they are still talking, but no significant new orders have been received, despite the huge fiscal stimulus that has taken place in the USA?

All in all, I rate the profit announcement as disappointing. Even so, the result is not out of line with problems being experienced by other NZ based exporters. Patience it seems is still a requirement for those on the SCT share register.

SNOOPY

discl: hold SCT

[Snoopy]

Results out:
A profit and a dividend - although both very modest ($390,000 before tax and 1 cent)
It will be interseting to see how Rocklabs contributed !

Better than a loss however.

Time to buy Snoopy ?

I guess to buy or not is a decision that depends on your time horizon Pointy Hat. I can't tell you when the moons will align in just the right way to make SCT the place to put your money. I can tell you that when that happens it will almost certainly be too late to invest, as SCT shares are so hard to prise from the existing shareholders.

I see that last year in November I bought some SCT shares at 91c. I am quite happy with that purchase and subsequently I was able to buy more SCT shares even more cheaply. Looking back to February 2007 I bought some SCT at $2.15. With hindsight that looks silly although I had reasonable cause to think it was a good idea at the time.

Through 'not trying to time the market' I have ended up holding SCT shares at an average price of $1.33. I am comfortable with that because if I tried to get the number of shares I hold now on the market today, I think that I would end up paying more than $1.33.

But am I buying any more? No, although I will buy more if the share price drops. Hopefully my 'downramping of the annual result' post will mean more weak shareholders will 'sell out' and allow that to happen.

SNOOPY

discl: hold SCT

[Snoopy]

But am I buying any more? No, although I will buy more if the share price drops. Hopefully my 'downramping of the annual result' post will mean more weak shareholders will 'sell out' and allow that to happen.

Nothing in the media, but did happen to notice a -h-u-g-e- day for Scott Technology on the market. In fact with nearly one million shares traded (around 3.5% of the company) , this could very well be the biggest single days trading in SCT shares since the company was listed.

Looking at last years 2008 share register, it looks like ING (NZ) nominees may have sold out. ING look to be the only institution on the register with a top twenty holding too. So if I am right, SCT looks like it has just become a virtual private company. I say that because the three largest shareholders on the register are effectively insiders. Where does that leave the small shareholders? Phaedrus would say the 'smart' money has just sold out, so by the 'definition of remainders' does that make we small shareholders the 'suckers'?

What I do know is that last time an institution sold out like this, it provided an excellent buying opportunity for the small investor. So SCT you have my attention. I am watching you closely.

SNOOPY

P.S. I notice that ING were not listed on the top twenty share register in 2007. So these smart guys at ING look pretty flighty to me. Personally I think the ING exit, if that is what it turns out to be, may be something to do with ANZ bringing former joint superannuation venture partner ING in house. Perhaps a new money manager is sweeping through the portfolio getting rid of stuff he doesn't like? I wonder who the buyer was? Perhaps that man James Ian Urquhart again?

[Arthur]

I went to the AGM (best food and wine of any I have attended, a bad sign?)
Aside from slamming the exchange rate the Directors were all positive. They have bought shares and have topped up further since the annual report. Boning is gaining traction, Alliance has bought and they have plenty of inquiry. Saw a couple of robots in "action".
They are currently so busy that the Christmas holidays are being restricted.

[Snoopy]

They are currently so busy that the Christmas holidays are being restricted.

This is the bit that I liked from Chris Hopkin's annual address Arthur:

"To provide you with some feel for the level of enquiry, we are currently bidding on or in early discussion with customers for four mining industry projects, five appliance systems and multiple meat processing systems. These total in excess of $40m and in addition there are at least another fifteen prospects that are in early stages."

I looked in "the Press" the next day for the reporters write up and saw absolutely nothing. Just as well the ODT was there to provide some coverage then!

The ODT, after chatting to Hopkins afterwards, went on to say that not all of that $40m of business under discussion would be put through the books during FY2010. For comparative purposes, revenue for FY2009 was $31.3m. Given the current exchange rates I would be looking for a small improvement in profit for FY2010. Given SCT sat on a PE of over 100 before the AGM, I was therefore somewhat surprised, although pleased, the SCT share price has moved up by 15% to $1.15 since the AGM.

Don't get me wrong, I am very pleased the workshop is busy. That means layoffs and any consequent loss of skilled engineers will be avoided. Scotts is a company that relies heavily on its 'human capital' which is something that can never be reflected in those bare accounting figures. But unlike some people, I do not believe that any major step change in profitability has been signalled by SCT management. Keeping turnover up and actually booking improved profits are two different things.

SNOOPY

discl: hold SCT