I didn't get around to making a profit forecast for FY2019.
Fast forward to FY2020. The way Scott's now operate, segmented results are declared in geographical areas. This makes it difficult if you are used to thinking of results in terms of what is happening to different global industries. I think it best to think of Scott Technology as having a base of earnings that does not grow from year to year, then superimpose on this picture the earnings growth from certain fast growing business units.
Taking the base level profit of FY2019,
FY2019 Profit Normalisation:
Most of these adjustments may be found on p39 of AR2019. I have:
a/ Subtracted the gain on sale of property plant and equipment of $0.106m and $0.237m (assumed non taxable)
b/ Added back in the unrealised loss on foreign exchange derivatives ($1.334m) and fair value losses on derivatives used as hedges ($1.216m) and the unrealised fair value losses on interest rate swap contracts ($0.346m) .
c/ Subtracted foreign exchange gains ($0.008m) and fair value gains on firm commitments ($1.216m) .
$8.604m-($0.106+$0.237m)+ 0.72($1.334m+$1.216m+$0.346m-$0.008m-$1.216m)= $9.464m
How do I see things developing over the current year FY2020?
Amount |
Description |
Calculation |
$9.464m |
Baseline Adjusted Profit FY2019 |
+$0.252m |
Interest saved from lower interest intellectualbill |
$0.350m x 0.72 |
+$1.649m |
Meat Industry Robotics (incremental) |
$10.994m x 0.15 [See Note (A)] |
+$0.705m |
Transbotics (incremental) |
0.15 x $4.7m [See Note (B)] |
-$0.500m |
Appliance Production Lines |
My post 800 |
+$0.630m |
Mining |
2 x $0.315m [See Note (C)] |
-$1.458m |
Loss of NZ R&D Grant (scheme expired) |
0.72 x $2.026m |
$10.742m |
Forecast NPAT Total |
|
With 78.311m shares on issue, this equates to an earnings per share figure of:
$10.742m / 78.311m = 13.7cps
At $2.20,SCT is trading on a projected PE of 220/13.7 = 16.0
Notes
A/
Meat industry Robotics Thanks to the expansion of the Scott Technology site at Kaikouri Valley in Dunedin, FY2020 represents the first year in which the meat industry robotics team have double the area to build their meat industry robotics projects. From my post 485, the aim is to supply 5-10 automatic robotic projects per year. The estimated value of a full production line is $12m to $13m, or some $6.5m for half automating a production line. Most growth looks to come from Pork (see Pork Primal System already drawn up on pages 27&28 of AGM2019 presentation) and Beef processing in FY2020, because the lamb market in Australasia is significanly automated already.
Seven half projects completed over FY2020 would produce revenues of: 7 x $6.5m = $45.5m. This represents an increase of:
$45.5m - $34.506m = $10.994m
From post 485, the margin on this increased turnover is approximately 15%. This allows us to calculate the NPAT incremental profit from the increase in meat industry turnover
B/
Automatic Guided Vehicles We know from slide 6 of the Forsyth Barr March 2019 Emerging Companies Conference that the EBITDA margin at Transbotics is 20%. Interest is not negligible and Depreciation and Amortisation at Technology companies can be high. So I am assuming a NPAT profit margin of 15%
Sales over the last five years at Transbotics have ranged from $US4.5m ($NZ6.9m) to $US11m ($NZ16.4m) over the years 2014 to 2108 (slide 30 same presentation (using exchange rate of $NZ1 = $US0.67). In the year that Transbotics came into the Scott fold (FY2018) the annualised sales rate worked out to be:
$NZ4m x (365/122) = $NZ12m
The AGV market has a target growth rate of 30%+ (slide 14, Scott Presents with Moelis November 2019 Slide Show). So I am estimating Tramsbotics revenue was 1.3 x $12m = $15.6m for FY2019 and 1.3 x $15.6m = $20.3m over FY2020, That equates to incremental revenue of $4.7m. The incremental increase in NPAT from that can be estimated as follows:
0.15 x $4.7m = $0.705m
C/
Mining
Hopkins noted in his AGM address that:
"we expect Mining to rebound significantly in 2020,"
"Opportunities for the Mining sector is primarily for Scott’s sample preparation systems but through recent developments, extends into field automation ,such as robotic refuel,robotic idler change and automated fire assay."
Multiple Robo-prep installations are planned for FY2020. The addressable market for these is judged to be $20m to $50m per annum.(Moelis November 2019 Presentation , Slide 13). The largest installation so far was an automated Sample Preparation System for Pernoles, the second largest mining company in Mexico. This build took 5 months, largely at Scott's Sydney engineering base. MAR, now "Scott Australia' had a turnover of about $7.7m when acquired in FY2015. With organic growth that could be $10m today. If half of MAR's resources were assigned to this robo-prep project for 5 months, that would account for:
0.5 x 5/12 x$10m = $2.1m of turnover.
If we assume a 15% profit margin, this one project could have contributed: 0.15 x $2.1m = $0.315m of the group profit after tax. We can use this figure to judge the NPAT effect of an incremental two extra Robo-prep system sales on net profit.
D/ 'Robotworx' profit assumed unchanged.
E/ 'Alvey' profit assumed unchanged due to the continued uncertainty and flow on fall out from Brexit.
F/ 'HTS-110' Superconductor Technology Subsidiary assumed to be no longer a meaningful contributor to the group (it wasn't mentioned in the Annual Report).
G/ I have not made any allowance for costs relating to the closure of "DC Ross". However this is a 'one off' event that is unrepresentative of the ongoing operation of the business.
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