Skellerup (SKL) Fundamentals

[mshierlaw]

I sold out 3 weeks ago, my reason - will factories remain open as this crisis develops?

[Snoopy]

SKL is a prime example of the skittish mood of today's markets. Shareprice up over 12% today.

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COVOID 19 Correction - NZPA 21st March 2020 for urgent release

Following a review of Skellerups' trading update earlier in the week, CEO David Mair has released some urgent revisions. Mair is now aware that the way that some of his previous comments were expressed, may have been seen as 'misleading to the market'. Further clarification is required.

Mair noted that the Italian factory of rubber driveshaft components had in fact shut down for two weeks from March 11th, in accordance with Italian government COVID19 emergency law. But Skellerup was using the opportunity to conduct annual maintenance that is part of the normal business plan. In this sense it is 'business as normal', because a stockpile of driveshaft rubber componentry had been built up in anticipation of the annual shutdown.

Mair further clarified that the reported 90% drop in the Chinese car market in February 2020 was not yet reflected in Skellerup's accounts because supply components were ordered three months in advance. Thus although there was no sign of a drop off in Mercedes sales in China in Skellerup's figures, this is likely to change over the next few months. Furthermore the Mercedes-Benz E Class L platform that Mercedes Benz builds in China is not compatible with electrification. This means that sales are likely to be regulated downwards in the medium term as China seeks to implement tough new anti-pollution measures.

In the United States there has been a drastic fall in demand for the Skellerup Masport vacuum pump. The collapse in oil price has meant that shale oil production in the United States has now been either permanently shut down or indefinitely suspended. Consequently all US domestic purchases of road based oil tankers from US based primary producers have been halted. Furthermore, the announced suspension of all outdoor festivals in the United States means that demand from the portable toilet industry that uses their tankers, equipped with Masport vacuum pumps, to empty their portable toilets has also collapsed. While neither of these effects have been felt in the accounts period to date:

"We now expect a severe downturn in the vacuum pump business in FY2021." Mair said

Australia has been particularly badly affected with a sudden market downturn in commodities. This is likely to severely affect the private house building market as workers either lose their jobs, or are subject to much reduced working hours. Thus we expected the already depressed market for commercial and public sector building to be joined by a downturn in residential sector construction. Consequently the market for the DEKs roof sealing product that we produce in Australia, while holding up now, is likely to be severely affected.

In the United States, a house construction downturn is now expected as the whole wage and salary market contracts. Skellerup's 'Gulf Rubber Products', that supplies critical components to the domestic plumbing supply industry is now a forecasting 'a significant contraction in demand' into FY2021.

"While I am cautiously optimistic of the outlook for our Agricultural division products over FY2021, in the industrial division at least it is timely to remind shareholders that past performance is no guarantee of future performance."

Full confirmation and EBITDA quantification of all these projected market effects will have to wait until the first of next month. - ENDS -

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The above press release, early on Saturday morning, might yet have a serious affect on the SKL share price on Monday!

SNOOPY

[Snoopy]

The above press release, early on Saturday morning, might yet have a serious affect on the SKL share price on Monday!

Lest any SKL shareholders who consider selling their shares on Monday as a result of the "COVIOD-19 Correction" update, as reported by me, let me confirm that this "press release" is a hoax. There were several clues in there for those that read the so called "press release" carefully. It was ostensibly put out by the New Zealand Press Association. But that organisation has not existed since 2011. Secondly it was put out on a Saturday. Anyone who follows the market knows that market press releases are never put out on a Saturday. Finally the confirmation press release as regards "the EBITDA effects" of what was detailed, was to come out on April 1st. More fool anyone who believed that! If you did believe the 'press release" I am sorry to say that you have been scammed. So why did I go through this exercise?

In times of turmoil, there are scammers out there waiting to take advantage of you. So when you read something "on the markets", but not put out "by the markets" your BS meter should go on full alert. I was going to announce my "COVID-19 Correction" post as 'fake news'. But is it fake news? A scam will only work if it contains some truth within it. Looking through that 'fake press release', can you be sure that any of the information content in there is not true? Well, speculation often turns out to be not true. But I would argue that there is nothing in the content of that post that defies logic. Indeed it may all turn out to "all come true" after all, even though there is no admission from Skellerup at this point to that effect.

I managed to acquire some more SKL shares myself on Thursday, prior to the Friday price jump. I expect SKL earnings to be minimally affected over FY2020, as hinted at by the 'real' press release put out by David Mair last week. However, I do expect some deterioration in FY2021, from one or more of the effects I have highlighted in the 'fake press release'. My purchase of SKL shares last week, I have made assuming a modest decline in dividends over FY2021. My purchase was based on a 'business cycle' dividend yield and made at a particular price point that satisfied my dividend yield requirement. Thank you "Mr Market" for providing me with this opportunity.

SNOOPY

[Jerry]

Phew, Snoops! Saved in the nick of time! Thank you for this heads-up!

[Snoopy]

Industrial Division

Industrials may be a bit more challenging. The main 'driveshaft coupling gig' is Skellerup's Italian Factory supplying the Chinese manufactured (for Chinese domestic consumption) "Mercedes Benz E-Class L" cars. Sales figures to the end of January 2020 are here:

https://carsalesbase.com/china-car-s...-benz-e-class/

CY2019 was a record year for this model in a year where auto sales in China were under pressure. January 2020 sales were a bit down and this was before the ramp up of the Coronavirus problems in China and subsequently Italy. Car sales in China are reported to be down 90% in February 2020. So we might be looking at a short term headwind here, even if the underlying demand for the Chinese made Mercedes product looks sound.

Good news for SKL holders. The Mercedes car factory in China is back in business (Mar 26, 2020 article)

https://carbuzz.com/news/unlike-othe...vernment-money

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"Another vital factor currently working in Mercedes' favour is that it recently re-opened its factory in China and that demand has slowly but surely been increasing once again in the world's largest auto market."

" "The vast majority of our dealerships have reopened, the customers are returning," Kallenius confirmed. "Every day more people come to the car dealerships. Demand is picking up, which makes us optimistic." "

"Both the Mercedes-Benz E-Class and C-Class sedans are manufactured in China specifically for that market."

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SNOOPY

[Sideshow Bob]

Market Update

30/3/2020, 9:28 amMKTUPDTE

Impact of Covid-19 and Trading Update
Following its market update on 16 March 2020, Skellerup has provided a further update on the impact of Covid-19 on its business.
Many of Skellerup’s products are critical to the continuity of safe food and water and the function of health and medical devices and we therefore have an important role as a provider of essential services. Our approach during Covid-19 has been to keep the safety and wellbeing of our staff and customers paramount in our decision making. We have processes in place to protect people from, and to reduce the spread of Covid-19 wherever possible.
Recently governments around the world have imposed stronger restrictions. As a result, some of our facilities will operate at reduced levels or close temporarily during the next month as we focus on producing and delivering essential products. In New Zealand, we have completed Ministry for Primary Industries (MPI) registration of safe practice and so continue to make essential products at several of our sites for our dairy, utility, personal hygiene and healthcare customers.

We support the strong approach taken in many countries to lockdown and restrict the movement of people. Our teams have shown great skill and resilience to sustain operations to date and we are grateful for their willingness to play their part to support our essential services. They will continue to do this to ensure we can continue to safely supply key products to customers in all the markets in which we operate.
Demand throughout March has remained strong across our business. As a result, our YTD earnings continue to track ahead of pcp. However, given the restrictions now in place and uncertainty over their duration, earnings for Q4 and therefore FY20 will be lower than previously projected. Due to this uncertain timeframe we withdraw our prior guidance that FY20 NPAT will be consistent with the result achieved in the pcp.

Skellerup has a robust balance sheet, with low debt and significant undrawn, committed facilities which ensures we are well placed to manage through this uncertain period.
We will provide regular updates on our activities and results to keep shareholders informed as we navigate through this uncertain time for our people, customers and partners.
For further information please contact:
David Mair
Chief Executive Officer

[traineeinvestor]

From today's market update:

"Prior to the Covid-19 outbreak, Skellerup was on track for a record result in FY20. At the end of March 2020 NPAT for the year to date was ahead of the prior comparative period. Having absorbed increased costs of operation and demand interruption in the final quarter we expect to deliver a full year NPAT in excess of NZD 28 million."

I'm assuming a steady dividend with no risk of a value-destroying capital raising. Very happy to continue holding.

[Waltzing]

good defensive stock and still paying a dividend and NO CAP raise required so far... potential darling of the market for the next 10 years? who would have though... bargin at the bottom.. DISC: holding and will continue too. MR P sold out before the last dividend, i wonder if he bought back in at the low. This man is far and away ahead of most of us as ive read his posts for many many years. The Warren Buffet of the south....

[RTM]

I’ve said before I like companies that actually make stuff that the world needs, unlike the shoe people. Boosted my portfolio to a full position at 1.82 recently. Quite pleased with this long term investment and good to see this update today.

[Ggcc]

Beating the trend for the day and slowly increasing over the week