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  1. #1
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    Default Skellerup (SKL) Fundamentals

    New thread to separate from the chart view.

    One thing worth noting re SKL fundamentals is the comment in the Chairman's notes that states "...its (the Industrial division) EBITDA is anticipated to increase to approximately 60% of group EBITDA in the 2007 year".

    This statement is significant. Last year, agri provided $16m EBITDA and industrial $17m. Now, unless agri is shrinking, this is a substantial change. Based on agri remaining constant, a 60% contribution from industrial would indicate EBITDA of $40m - a $7m or 21% increase on prior year. A small amount of growth in agri to $16.5m would indicate EBITDA of $41.3m, or a 25% increase.

    While interest expense is likely to increase, an estimated increase in interest cost of $2.5m would still see an increase in NPAT of $3 - $4m, taking NPAT to $16.4-$17.4m. Allowing for some dilution from the DRP, this would put them on a forward P/E of 8.8 - 9.3 at current share price of $1.44.

  2. #2
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    It always seems that the number of responses is inversely proportional to the time spent researching a post. Before I go off for an extended sulk, I shall give myself a response.

    1. Is the company being unrealistic in their figure of 60% EBITDA from industrial? Possibly. But last year industrial had organic growth of 16% ($11m revenue). The remaining $24m revenue increase came from acquisitions. However, the major acquisition, Gulf Rubber, was included for only 5 months of operations. I estimate that Gulf Rubber should therefore contribute at least a further $20m to revenue for this year. An additional 16% organic increase would bring industrial revenue to $140m. Using the same EBITDA margin as for 2006 would give industrial an EBITDA contribution of $23m - a $6m increase over 2006 (c.f. the $7m calculated from the Chairman's comments).

    2. Why aren't analysts calling this? Analysts appear to me to be low-balling either the revenue projections or margins or both. Reports I have seen have given revenue of $186 - $189m, c.f. my calculation giving $195m. This means they can produce a result which shows a conservative NPAT growth in line with past years.

    3. How risky is this? Very. Forex and raw material prices can swing things quite markedly. Comments at this afternoons AGM should give some better guidance, so safer to wait .


  3. #3
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    quote:Originally posted by Lizard

    It always seems that the number of responses is inversely proportional to the time spent researching a post. Before I go off for an extended sulk, I shall give myself a response.

    1. Is the company being unrealistic in their figure of 60% EBITDA from industrial? Possibly. But last year industrial had organic growth of 16% ($11m revenue). The remaining $24m revenue increase came from acquisitions. However, the major acquisition, Gulf Rubber, was included for only 5 months of operations. I estimate that Gulf Rubber should therefore contribute at least a further $20m to revenue for this year. An additional 16% organic increase would bring industrial revenue to $140m. Using the same EBITDA margin as for 2006 would give industrial an EBITDA contribution of $23m - a $6m increase over 2006 (c.f. the $7m calculated from the Chairman's comments).

    2. Why aren't analysts calling this? Analysts appear to me to be low-balling either the revenue projections or margins or both. Reports I have seen have given revenue of $186 - $189m, c.f. my calculation giving $195m. This means they can produce a result which shows a conservative NPAT growth in line with past years.

    3. How risky is this? Very. Forex and raw material prices can swing things quite markedly. Comments at this afternoons AGM should give some better guidance, so safer to wait .

    OK, LIZ the true story is every one looks at it and NO one BUYS it such a boring stock is a great candidate fore TAKEOVER.. [8D]

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    I held this for sometime, and got out for frankly psychological reasons. Far from being boring, I felt that management had an appetite for risk which was out of step with the sort of business that this is. They also seem to be hoping that macroeconomic conditions move in their favour. I am watching and if they start to demonstrate that they can actually produce consistently improving results, then I'll be onboard.

  5. #5
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    What are the actual details of this reported $4m hit when currency cover runs out?
    om mani peme hum

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    Hi PT. I'm a bit surprised at the size of that! From memory, I thought the cheap currency cover fell away more gradually and ran out completely in early 2007. An amount of that size off the bottom line certainly puts a dent in my analysis. Seems the company is forecasting to still grow NPAT, despite the forex hit, but only by an amount similar to last year.

    Still think SKL will work out as an investment, but less enthused than I was.

  7. #7
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    SKL looking good today with close at $1.60 and a dearth of sellers. Has also paid a 5cps dividend since my post of a few weeks ago.

    In true forum style, I should now point out (after the fact) that I bought more at $1.46 the day after my initial post...

    ...and am about to go spend the dividend on patagonian toothfish with miso sauce for mothership's belated birthday celebrations!

  8. #8
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    Bless you my child - I was not really looking forward to the KFC

  9. #9
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    Lizard, how do you feel about their debt levels? I was initially interested in SKL, with their high ROE and reasonable dividend, but that ROE is really the result of some substantial leverage. This leaves me wondering how they would do in a bad year.

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    The ROA still looks good though. So debt pays off. But still need to see how that looks without the hedges...so I am non-committal [8)]

    (DRP is a good move in that regard though)

  11. #11
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    This Happy Camper is very pleased with the recent run up in the share price.

    I calculate that around 2% of the company has changed hands in the past month. I would be keen to have someone with access to raw data confirm
    a) my crude 2% calculation
    b) the normal range of %age churn per month for SKL over the past year or so

    Cheers

  12. #12
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    I have held SKL (SKX) for 2 years now on the basis it has been undervalued. However, I am not sure what has changed to increase the price. Nothing much has changed except that the business model is proving robust with good consistency in earnings.

    Maybe there is an undercurrent or whiff of a takeover in this price ramp up. But I would not expect earnings to significantly increase (nor decrease) so not sure what is happening here.

  13. #13
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    Supposedly it has quite an open register so it would be quite easy to takeover should someone want to.
    \"The overweening conceit which the greater part of men have of their own abilities [and] their absurd presumption in their own good fortune.\" - <b>Adam Smith</b> - <i>The Wealth of Nations</i>

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  14. #14
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    quote:Originally posted by Base Trader

    I have held SKL (SKX) for 2 years now on the basis it has been undervalued. However, I am not sure what has changed to increase the price. Nothing much has changed except that the business model is proving robust with good consistency in earnings.
    If you have thought that the company was undervalued for the past couple of years, perhaps other investors have come to the same conclusion - and pushed up the price. That was my reason for buying in August.

  15. #15
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    This Happy Camper considers that at $1-60 this share is fully valued. Having said that, private equity players have been confounding me of late with the premiums they have been paying when acquiring quality stocks.

    SKL still deliver a respectable div yield at these prices, so this Happy Camper intends to hold until the SSH picture becomes clearer - I anticipate that will be later this year or early next.

    Cheers

  16. #16
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    http://www.stuff.co.nz/stuff/0,2106,3880555a13,00.html

    Skellerup sets $500m target
    28 November 2006
    By ALAN WOOD

    Skellerup Industries has set itself an ambitious $500 million sales target over the next five years with acquisitions of non-mature firms a key way of driving that growth.


    Skellerup's twin Christchurch-Auckland management teams have also upped the company's export drive, aiming to increase international sales to 60 per cent of revenue in the next 12 months.

    "That could well expand to upward of 80 per cent in the next five years when we'd like to be a $500 million sales company," Christchurch-based chief operating officer Mike McKessar said.

    The rubber and polymer product maker was building on revenues of $122 million in 2005 and $159 million in 2006 toward $190 million to $200 million in 2007. "Everybody considers us a gumboot-manufacturing company, but that's just $10 million (annual revenues), less than 5 per cent of our business."

    Skellerup, a top-50 listed company, is part of the annual New Zealand Trade and Enterprise Export Awards, to be held in Auckland on Thursday. There are seven sector-based awards.

    The company had a target to improve on the June 30, 2006, $13.4 million net profit by at least 7 per cent. This required more work, considering it had benefited from strong currency hedging positions till recently. It wanted to compound that 7 per cent growth each successive year in the next five years.

    Mr McKessar said the export strategy was based on organic growth and the acquisition of businesses or products closely aligned to its existing core businesses.

    AdvertisementAdvertisementWith bank debt of about $94 million, funding of larger acquisitions would require raising capital.

    Of Skellerup's 950 staff, about 260 are in Christchurch, with 150 in China based mainly at a new manufacturing plant about four hours north of Shanghai. There are 40 in the United States, 30 in Britain and 100 in Australia.

    Typical of the export growth strategy, research and development staff were close to completing a firefighter's boot to meet specifications from several countries. "This market alone is worth around $100 million annually ... We know we've got a good price position in terms of where we're at with our Chinese manufacturing facility," Mr McKessar said.

    Skellerup's Shanghai facility has enabled it to remain competitive in the manufacture of various products, including gumboots and vacuum pumps.

    The acquisition of Australian company Deks in 2003 made Skellerup one of the largest producers of the rubber components of roof flashings in the world, he said. In the 2007 year its revenues would hit about $18.5 million.

    Technical rubber product maker Gulf Rubber, bought for $32 million in January, had targeted revenues of $35 million.

    Mr McKessar said the buoyant mining resources market in Australia had driven up demand for Skellerup's rubber components. It was the third largest manufacturer of dairy industry-related rubberware in the world.

    \"The overweening conceit which the greater part of men have of their own abilities [and] their absurd presumption in their own good fortune.\" - <b>Adam Smith</b> - <i>The Wealth of Nations</i>

    The information you have is not the information you want.
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    The information you need is not the information you can obtain.
    The informaton you can obtain costs more than you want to pay.

  17. #17
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    While I think SKL is great for the longer term, I am a little concerned about the potential impact of USD weakness on the profit result. Taking into account that they were working on an exchange rate of 0.60 when they gave their half year result (outlook for NPAT growth similar to previous year). Also, they said at the time that the expiry of lower rate hedges was reducing profit by around $4m, so currency effects can be quite large for them. I have reduced at $1.62.

  18. #18
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    If anything, the short-term will provide better #'s than long-term. The annual report notes that the FX contracts as at 30 June 2006 had a fair value of $6.3M but a carrying value of $0. This gives them the choice of selling more cheaply than non-hedged competitors or having a wider profit margin on these imported sales. Both of these options are favourable short-term.

    Longer-term there appears to be less currency risk, so the roll-off of these favourable hedging positions isn't such a big issue.
    a) High NZD = Cheaper imports but profits on China-foreign & AUD sales convert less favourably
    b) Low NZD = More expensive profits but the 50%+ of sales outside NZ convert at a better rate hence more revenue and NZD profit.

    Disc - shareholder

  19. #19
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    Does anyone know why the SP has taken a dive over the last few days while the rest of the market is bull running? Just scouring the top 50 for a good long term value share as I am reducing my Ryman holdings quite a bit (reckon RYM SP is getting way ahead of itself). I used to own Skellerup and am thinking of getting back in because at 1.40 this to me looks good in terms of low pe, yet reasonably good growth prospects. Anyway, back to my question... anyone know why all the enthusiam that carried SKL up over 1.60 has faded away, just want to be sure I am not missing some vital piece of info before getting back in...!

    FG

  20. #20
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    AMP Capital investors have been selling down.

    I'd be inclined to wait and review HY results and comments before getting in. I think the short term positive impact of the currency hedges is stronger than I initially assumed. That may sound good, but longer term it is a constraint on profit growth as growth is offset by loss of hedges. That is probably why SKL's growth rate has appeared low, to date and may continue to appear weak for another 18 months.

    Without better fundamental data, I would at least wait for a technical buy signal.

    I'm not finding much to invest in here in NZ either. Every time I think I've had a great idea, it seems to unravel a few months later!

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