Skellerup (SKL) Fundamentals

[winner69]

Whers's this 10.3% mentioned in the article

They did mention trailing 12 months to Dec 20 - maybe H220 + H121 (last 2 half years)

[Snoopy]

Where's this 10.3% mentioned in the article

It isn't directly. There is a link in the article to the underlying 'Simply Wall Street' research on SKL. The 10.3% is mentioned in the executive summary of that research which you can find a direct link to here:

https://simplywall.st/stocks/nz/capi...oldings-shares

"Earnings have grown 10.3% per year over the last five years"

SNOOPY

[Ggcc]

It isn't directly. There is a link in the article to the underlying 'Simply Wall Street' research on SKL. The 10.3% is mentioned in the executive summary of that research which you can find a direct link to here:

https://simplywall.st/stocks/nz/capi...oldings-shares

"Earnings have grown 10.3% per year over the last five years"

SNOOPY

Either way we are up, up and away

[Snoopy]

Either way we are up, up and away

At the half year Skellerup were forecasting a profit of $33m to $37m, up 15-29% from my normalised FY2020 result of $28.763m.

Based on 194.763m shares being on issue, this implies FY2021 eps of 16.9cps to 19.0cps.

With the share price closing tonight at $4.68,this implies a forward PE for FY2021 of 25 to 28. To justify a share price of $4.68, you would have to think that significant growth is priced in for FY2022 as well. How much growth will actually occur in FY2022 is unknown at this point. Up up and away? I get the feeling that this bird is in full flight already!

SNOOPY

....who nevertheless has a very full holding of SKL, so doesn't need to accumulate more.

[Ggcc]

At the half year Skellerup were forecasting a profit of $33m to $37m, up 15-29% from my normalised FY2020 result of $28.763m.

Based on 194.763m shares being on issue, this implies FY2021 eps of 16.9cps to 19.0cps.

With the share price closing tonight at $4.68,this implies a forward PE for FY2021 of 25 to 28. To justify a share price of $4.68, you would have to think that significant growth is priced in for FY2022 as well. How much growth will actually occur in FY2022 is unknown at this point. Up up and away? I get the feeling that this bird is in full flight already!

SNOOPY

....who nevertheless has a very full holding of SKL, so doesn't need to accumulate more.

I feel that we might be missing the fact that this business like few others defied the covid trend to date. Not sure if this will continue. Still a decent dividend in comparison to other companies out there and growing profits by the looks. Up up and away was the share price and I was getting excited. I am invested, but will not be topping up at these prices and have no intent to sell yet. Thanks for all your opinions and data on SKL

[nztx]

I feel that we might be missing the fact that this business like few others defied the covid trend to date. Not sure if this will continue. Still a decent dividend in comparison to other companies out there and growing profits by the looks. Up up and away was the share price and I was getting excited. I am invested, but will not be topping up at these prices and have no intent to sell yet. Thanks for all your opinions and data on SKL

Similar thoughts here too - but still a good portfolio addition if a bit expensive for it's resilience

but then many other candidates are also overpriced IMO

[Snoopy]

My mate Snoops says he prefers ROE over ROCE because ROCE leaves out interest and taxes (which are real cash). Fair enough

I prefer to use an equivalent thing called ROIC (Return on Invested Capital) which measures the returns from what shareholders and lenders have invested in the business. Formula is (EBIT * (1 - Tax Rate) / (Equity + Borrowings)

You can see it counts tax so gives tax paid returns to investors (both shareholders and lenders) - shareholders gets divies and lenders get interest and some may be reinvested in the business.

I think its a better measure of how a company uses capital than ROE because it expresses returns on total capital used rather than just what shareholders have put in.

One always wants to see ROIC higher than the company's cost of capital - otherwise it is destroying economic value

In SKLs case ROIC is currently 13.4% which is pretty good. I reckon their cost of capital is about 7% (PWC reckon 4.5%) so SKL are making pretty good excessive profits (over the cost of capital employed)

Those excessive profits are about $14,5m (some call this EVA which is Economic Value Added)

I have decided to go over to the 'Winner's Side' and roll out a few ROIC calculations. Since Winner has already done this one I will check his working ;-)

Numbers are taken from the Income Statement and Balance Sheet of AR2020 for SKL:

ROIC = EBIT(1-T) / (Equity + Borrowings)

= $42.486m(1-0.28) / ( $184,563m + ($0.830m + $41.300m) = 13.49%

So it looks like Winner is correct :-)

SNOOPY

P.S. Woke in the middle of the night and remembered I should have taken the cash balance off the current borrowings,

= $42.486m(1-0.28) / ( $184,563m + ($0.830m - $13.617m + $41.300m) = 14.36%

So it looks like Winner is (mostly) correct :-)

[Ggcc]

I have decided to go over to the 'Winner's Side' and roll out a few ROIC calculations. Since Winner has already done this one I will check his working ;-)

Numbers are taken from the Income Statement and Balance Sheet of AR2020 for SKL:

ROIC = EBIT(1-T) / (Equity + Borrowings)

= $42.486m(1-0.28) / ( $184,563m + ($0.830m + $41.300m) = 13.49%

So it looks like Winner is correct :-)

SNOOPY

P.S. Woke in the middle of the night and remembered I should have taken the cash balance off the current borrowings,

= $42.486m(1-0.28) / ( $184,563m + ($0.830m - $13.617m + $41.300m) = 14.36%

So it looks like Winner is (mostly) correct :-)

So a question here. What would a company pay to take skellerup off the market ie takeover What is a reasonable takeover target in your eyes.

[Snoopy]

So a question here. What would a company pay to take skellerup off the market ie takeover What is a reasonable takeover target in your eyes.

I hadn't thought about the 'takeover' question. Such deals are normally done on EBIT or EBITDA multiples. The only NZX takeover I can recall in recent times in a similar industry was JBS taking a stake in Scott Technology. In practice you would need to consider a series of real world takeovers, at least across Australia and New Zealand which these days generally produce a lower multiple that if such an analysis was done on NZ listed companies alone.

Taking an indicative multiple figure of 7.5 or 8:

	Low	High
Maintainable EBITDA	$50.025m	$55.028m
Valuation Multiple	7.5x	8.0x
Enterprise Value (000s)	$375.188m	$440.224m
less Net Debt (000s)	$28.513m	$28.513m
Aggregate Equity Value (000s)	$346.675m	$411.711m
No. shares on issue	195.276m	195.276m
Value Per Share	$1.78	$2.11

Notes

1/ Depreciation of right of use assets not considered for this comparison. Depreciation of PPE for FY2020 was $7.272m. Amortization was $0.267m. $42.486m was EBIT for FY2020.

=> EBITDA= $42.486m + $7.272m + $0.267m = $50.025m (FY2020)

Higher earning alternative scenario includes: NPAT rise if a more than 10% higher NPAT figure over for FY2021 occurs, as forecast at HY2021.

2/ 'Enterprise Value' = 'Maintainable EBITDA' x 'Earnings Multiple'

These valuations do not include a 'premium for control' which could be as high as 20%. This brings fair value for SKL shares up to $2.14 to $2.53. With SKL shares on the market trading at $4.58 today, I am not sure what this valuation analysis proves. Except that perhaps SKL is massively overvalued on the market today, given historical valuation precedents?

SNOOPY

[winner69]

Snoops .....I, along with other analysts) tend to leave Cash out of the equation unless it is a real significant amount. We see it as just working capital - like if they paid all the bills it’s all gone.

I know you’ll resort to this thing called Net Debt ....so be it.