SCT - Scott Tech

[BlackPeter]

Question.
Is SCT share price higher today than it was 21 years ago.?

Great question.

SCT longterm.JPG

Not really .... but hey, they had their ups and downs and they paid in roughly half of the years (based on Yahoo finance) a quite mediocre dividend.

However, to be fair ... they might have had as well a few share splits as well as Cap rises over the decades ... i.e. the comparison may or may not be fair. I don't know. Anybody does?

[Snoopy]

The industry clearly should have some tailwinds with the problems in the meat processing industry, however - there are plenty of big players in Europe as well as Asia understanding automation as well (and having ways larger resource pools).

Some still think that Scott aims to conquer the world from their Kaikouri Valley base in Dunedin. But Scott's are players in Europe already with 'Scott Europe' being the old Alvey (Belgian based) company plus a significant workshop and development capacity in the Czech Republic.

There was a potential competitor who started up in Europe to build a competitive equivalent of the 'meat boning room'. But a word to the lawyers in Europe about the patent protection filed on that continent put paid to that little venture.

Not sure about your point of others having 'larger resources'. At face value level, that claim is true. But is Scott's short of the resources it needs? They claim that majority shareholder JBS is there to guarantee more funds should that be required. Since JBS took their controlling stake there has been no mention of Scott's not having enough cash. And currently they are 'net debt free'.

Also. Scott are in the process of doubling their capacity in Asia via Scott China.

Scott is a minnow in the world of automation and it is everybody's best guess how they as company will perform in future.

But Scott are aiming to be a 'global leader in automation'. So that must be true ;-P

Sure - they might produce the world best beef slicing and processing factory and market, sell and service it all over the world - but then, they might not. Not even sure whether IP might be able to protect them if they have a good idea how to cheaper or better slice a carcass ... but so far they anyway first need this great idea.

Having seen what they are doing a couple of years ago ... it looked pretty much what you would expect to get anywhere in the world if you mix a handful of reasonably bright engineers and give them some toys to play. I don't think there is anything which a reasonably resourced German or other European or Japanese or other Asian technology company couldn't do as well ... i.e. not sure, what Scott's moat might be.

Scott's have patent protection on what they are doing re meat processing across Australasia. , Europe, U.K. and North America. A lot of the patenting is software based too. So a competitor couldn't just buy a piece of boning room equipment, strip it down and reverse engineer it from a strictly hardware perspective. Scott relies on clever people but doesn't pay them too much. So the German branch got shut down a few years ago, and they have never attempted to set up shop in the likes of the U.K. or Japan.

For some years at the AGM Scott rolled out a chart showing the ever growing number of international patents relating to their self developed (and in some case 'bought in' like Bladestop) technology.

SNOOPY

[percy]

I got a surprise today to see this press release, issued in parallel with the virtual AGM.

https://www.nzx.com/announcements/383599

The automated beef boning room project is back on, with avengeance! There are a couple of odd features of the announcement though.

"This announcement sees Scott Technology partner with Teys, one of Australia’s leading protein producers, and Meat & Livestock Australia (MLA), to develop a revolutionary beef solution"

So the solution has not yet been developed, after,-what?- over 15 years of trying? Isn't this the kind of project that CEO JK was trying to snuff out? The kind of project with indeterminate costs on a fixed budget ($18m). Actually $18m does not sound that much. I believe a fully functioning automated lamb processing line is around $12m-$14m, with all the design work pre-done. The machinery to handle a beef carcass is consummately bigger. So I can't see much 'development' money in that $18m develop, build install and commission project budget.

There is another thing odd about this announcement. JBS tout themselves as Australia's largest meat and food processing company. JBS are Scott's largest shareholder. Yet Scott's have selected meat processor Teys as their development partner, a direct competitor to JBS! Beef is the biggest meat processing industry in Australia by far. So JBS would have a huge amount to gain from the success of this automated beef room project. Yet they have chosen to 'sit back' and let their competitor steal the automation advantage. Huh?

Notwithstanding my confusion on which customer stands up first, this will be massive for Scott's as Australia (representing 4% of the global beef market) is only the beginning. This beef boning room will be the bridge to the USA, a market five times the size of Australia.

SNOOPY

https://sendy.tarawera.co.nz/l/J6oLV...Iesb82J8929Cxw

[Snoopy]

Question.
Is SCT share price higher today than it was 21 years ago.?

Great question.

SCT longterm.JPG

Not really .... but hey, they had their ups and downs and they paid in roughly half of the years (based on Yahoo finance) a quite mediocre dividend.

However, to be fair ... they might have had as well a few share splits as well as Cap rises over the decades ... i.e. the comparison may or may not be fair. I don't know. Anybody does?

As a shareholder over the last 21 years (actually more) I can answer that question.

1/ On 31st March 2001 the share price was $1.65
2/ On 8th December 2002 there was a 1:8 tax free bonus issue.
3/ On 4th December 2003 there was a 1:8 tax fee bonus issue,
4/ On 26th March 2010 there was a 1:10 tax free bonus issue
5/ On 4th August 2011 I took up a rights issue at at rate of 1 share for every 4 that I owned at $1.20 per share.
6/ On 14th April 2016 I took up a rights issue at a rate of 1 share for every 8 that I owned at $1.39 per share.

Question: That means for every share in existence today, from a shareholder perspective, if they had taken up their rights when offered, this is equivalent to owning how many shareholder owned shares in March 2001?

Answer: Equivalent Shares owned on 2001 = {No. Shares Owned Today) x 8/9 x 4/5 x 10/11 x 8/9 x 8/9 = 0.5108 x (No. Shares Owned Today).

OR put another way if you owned 10,000 shares today you could have built that shareholding up from owning 5,108 shares 21 years ago without buying any shares on the market.

At a share price of $3.58 today, your shareholding would be worth 10,000 x $3.58 = $35,800.00
On 31st March 2001 your equivalent holding would have been worth 5,108 x $1.65 = $8,428.20

There is one more bit of this 'capital puzzle' to fill in. We have to subtract from the present capital value, the cost of the rights issues that a shareholder would have had to subscribe to to make these capital gains.

a/ April 2016 Rights Issue: 8/9 x 10,000 = 8889 shares. Rights Issue Contribution = (10,000-8,889) x $1.39 = $1,544
b/ August 2011 rights issue: 8/9 x 8,889 = 7901 shares. Rights Issue Contribution = (8.889-7,901) x $1.20 = $1,186

This means the annual compounding capital gain (excluding dividends) over 21 years was:

$8,428.20 x (1+i)^21 = ($35,800- $1,544 -$1,186) = $33,070

=> (1+i)^21 = 3.924

=> 1+i = 1.067

This is a compounding capital return rate of 6.7% per year (excluding dividends). Not a 'get rich quick' scheme, but a fairly tidy return for long term investors who have 'kept the faith' over the years nevertheless.

SNOOPY

[Snoopy]

Great question.

SCT longterm.JPG

Not really .... but hey, they had their ups and downs and they paid in roughly half of the years (based on Yahoo finance) a quite mediocre dividend.

I have just had a more detailed look at the 'yahoo' chart you posted BP. It includes the three bonus share issues that I documented from 2002, 2003 and 2010. But curiously it did not include the 2011 and 2016 cash issues. I imagine those exclusions were deliberate, maybe a policy of not including cash issues? I do remember at the time of the 2016 capital raising, the share price dropped to around the level of the capital raising price and I managed to buy some more shares at the capital raising price 'on market'. So perhaps the argument is that if the capital raising price is around the market price, then that doesn't represent a gain that is fit for charting? History records that after taking up my rights and some more via the market at $1.39, I subsequently sold down my holding in two tranches at $2.10 and $2.60, to bring the value of the overall holding back into balance. Then a few years down the track just before Covid-19 hit in 2020, and just after, I bought those shares back again at $2.20 and $1.65 (only to rebalance the value of my holding up again you understand).

That little exercise plus some earlier rebalancing down then up some years before has seen the average holding price of my SCT shares fall to 73c. Compare that to the $1.65 reference share price from March 2001 and it looks like my own capital gains on SCT were approximately double that of the mythical buy and hold investor I outlined in my post 984 - very nice.

The yahoo chart also suggests that there were no dividends paid before November 2009. There was a dividend hiatus in 2008. But there were dividends paid before that, and at a higher level than today in the early 2000s. I can only assume that yahoo does not have this information. I guess it goes to show that you should take some of this yahoo information with a grain of salt. IOW just because it says so on the internet, that doesn't necessarily mean you are getting the full picture (who would have thought!)

For the future I was happy to pick SCT again as my technology investment of most conviction for the 2022 beat the brokers share pick competition. And this year complete with the endorsement of 'The big O' (from the Shareholders Association) what could possible go wrong ;-P

SNOOPY

[percy]

I have just had a more detailed look at the 'yahoo' chart you posted BP. It includes the three bonus share issues that I documented from 2002, 2003 and 2010. But curiously it did not include the 2011 and 2016 cash issues. I imagine those exclusions were deliberate, maybe a policy of not including cash issues? I do remember at the time of the 2016 capital raising, the share price dropped to around the level of the capital raising price and I managed to buy some more shares at the capital raising price 'on market'. So perhaps the argument is that if the capital raising price is around the market price, then that doesn't represent a gain that is fit for charting? History records that after taking up my rights and some more via the market at $1.39, I subsequently sold down my holding in two tranches at $2.10 and $2.60, to bring the value of the overall holding back into balance. Then a few years down the track just before Covid-19 hit in 2020, and just after, I bought those shares back again at $2.20 and $1.65 (only to rebalance the value of my holding up again you understand).

That little exercise plus some earlier rebalancing down then up some years before has seen the average holding price of my SCT shares fall to 73c. Compare that to the $1.65 reference share price from March 2001 and it looks like my own capital gains on SCT were approximately double that of the mythical buy and hold investor I outlined in my post 984 - very nice.

The yahoo chart also suggests that there were no dividends paid before November 2009. There was a dividend hiatus in 2008. But there were dividends paid before that, and at a higher level than today in the early 2000s. I can only assume that yahoo does not have this information. I guess it goes to show that you should take some of this yahoo information with a grain of salt. IOW just because it says so on the internet, that doesn't necessarily mean you are getting the full picture (who would have thought!)

For the future I was happy to pick SCT again as my technology investment of most conviction for the 2022 beat the brokers share pick competition. And this year complete with the endorsement of 'The big O' (from the Shareholders Association) what could possible go wrong ;-P

SNOOPY

Great investing on your part.
Certainly a different story from the chart,which left me wondering if SCT had been a dead duck for long term investors.
Although some would disagree, I think it is wise to take a bit off the top at times to reduce your average holding cost,as you did.
I think the real bonus is when you manage to achieve a free ride.

[Walter]

Reinvesting dividends has also played a part in increasing the return. 20 years ago the share price was in the 80 cent range. Dividend in 2003 was 14 cents a share, not a bad return.

[winner69]

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)

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

[percy]

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

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

Thanks W69 that is the question I should have asked.

[Snoopy]

Reinvesting dividends has also played a part in increasing the return. 20 years ago the share price was in the 80 cent range. Dividend in 2003 was 14 cents a share, not a bad return.

I have the SCT share price at $1.13 on 30th September 2021 (did it really go as low as 80c around then? It may have, but my records show that price much later in 2009 when the dividend vanished). The 14c annualised dividend ( interim dividend of 8cps (12-12-2002) + final dividend of 6cps (01-05-2003) ) from FY2003 was when the share price was higher ($2.37 on 31-03-2013). There has been a dividend reinvestment plan over the years. But due to the somewhat cyclical nature of the SCT business (up until now at least, who knows if that cycle has been broken?) I always figured that I could time my own purchases better, rather than rely on the DRP to gradually increase my holding. Each to their own though, and I imagine all of those who have built up their DRP holdings in past years are feeling rather good about that right now.

Still back in 2003, Scott's was a very different business to what it is now. So I think we can forget those 14cps annual dividends (fully imputed no less) going forwards. How do you know all of those details Walter? Could it be that I have found a fellow SCT investor as patient as I am?

SNOOPY