SCT - Scott Tech

[Snoopy]

I am not sure SCT management see themselves as a 'no growth' company. But as investors I think it is reasonable to assess the company as a dividend payer only to get some idea of value.

The calculation to work out the equivalent gross figure for the FY2020s partially imputed dividend, is as follows:

FY2020 Dividend P.I.: 4.0c (18.41% imputed, 18.41%/28%= 0.6575)
= 2.63c (FI) + 1.37c (NI)
= 2.63c/0.72 + 1.37c = 3.65c + 1.37c = 5.02c (gross dividend)

Year	Dividends as Declared	Gross Dividends	Gross Dividend Total
FY2015	5.5c+2.5c	N/A c + 3.47c	3.47c
FY2016	5.5c+4.0c	7.64c + 5.56c	13.20c
FY2017	5.5c+4.0c	7.64c + 5.56c	13.20c
FY2018	6.0c+4.0c	8.33c + 5.56c	13.89c
FY2019	6.0c+4.0c	8.33c + 5.56c	13.89c
FY2020	4.0c (18.41% I) + ?c	5.02c + ?c	5.02c
Total			62.67c

Averaged over 5 years, the dividend works out at 62.67/5 = 12.5c (gross dividend).

I have given some thought as to whether I should revise my sought for "gross yield" in this new environment of very low interest rates. I think that given the trade wars and the inability to move production from affected international production sites, I should not do this.

So based on my previously selected sought after 7.5% gross yield over an historic five year business cycle window, , 'fair value' for SCT is:

12.5 / (0.075) = $1.67

Now using my plus and minus 20% range to get a feel how the SCT share price might behave at the top and bottom of its business cycle.

Top of Business Cycle Valuation: $1.67 x 1.2 = $2.00
Bottom of Business Cycle Valuation: $1.67 x 0.8 = $1.34

At this part of the investment cycle, with conditions very favourable towards shares, I would argue that SCT shares trading at $2.30 (above the upper end of my expected range) are now overvalued by 15%.

I am not sure SCT management see themselves as a 'no growth' company. But as investors I think it is reasonable to assess the company as a dividend payer only to get some idea of value.

The calculation to work out the equivalent gross figure for the FY2020s unimputed dividend, is as follows:

FY2020 Dividend P.I.: 4.0c (18.41% imputed, 18.41%/28%= 0.6575)
= 2.63c (FI) + 1.37c (NI)
= 2.63c/0.72 + 1.37c = 3.65c + 1.37c = 5.02c (gross dividend)

Year	Dividends as Declared	Gross Dividends	Gross Dividend Total
FY2016	5.5c+4.0c	7.64c + 5.56c	13.20c
FY2017	5.5c+4.0c	7.64c + 5.56c	13.20c
FY2018	6.0c+4.0c	8.33c + 5.56c	13.89c
FY2019	6.0c+4.0c	8.33c + 5.56c	13.89c
FY2020	4.0c (18.41% I) + 0c	5.02c + 0c	5.02c
Total			59.2c

Averaged over 5 years, the dividend works out at 59.2/5 = 11.8c (gross dividend).

I have given some thought as to whether I should revise my sought for "gross yield" in this new environment of very low interest rates. I think that given the trade wars and the inability to move production from affected international production sites, I should not do this.

So based on my previously selected sought after 7.5% gross yield over an historic five year business cycle window, , 'fair value' for SCT is:

11.8 / (0.075) = $1.57

Now using my plus and minus 20% range to get a feel how the SCT share price might behave at the top and bottom of its business cycle.

Top of Business Cycle Valuation: $1.57 x 1.2 = $1.88
Bottom of Business Cycle Valuation: $1.57 x 0.8 = $1.26

SCT shares were trading at $1.84 on Friday 22nd May (near the upper end of my expected range) and are IMO now fully valued (from a business cycle projected dividend income perspective). With big capital spending programs on hold for many customer companies, and dividends from more buoyant years boosting my valuation, a significant recovery in business is already priced into SCT shares as they trade today The growth story, if it still exists, has not been priced in though.

SNOOPY