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  1. #1
    Permanently OutToLunch's Avatar
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    Default Scott Tech looking cheap

    At a PE of 12.5 and further down the profitability track than WDT, for example - surely SCT is a screaming buy?

    By the way, (although I haven't spent much time studying them in great detail aside from when I held WDT), surely F&P appliances, SCT and WDT have a lot in common when it comes to developing small appliance technology? I wonder what SCT and WDT could do if they worked together, say if WDT provided the small motor technology and SCT worked on the production line side of things. Surely a combo of these two would be appealing to the big manufacturers. Hmmmm... any thoughts, anyone?

    Disc: Hold none of these, wish I had some $ to grab a few SCT though

  2. #2
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    Default

    Always interesting looking back at what people say a year ago ... and how sentiment changes

    SCT was at 295 on 30/04/04 ... 1 year on 240



    “In a roaring bull market, knowledge is superfluous and experience is a handicap.”

    –Benjamin Graham”

  3. #3
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    Default

    I'm still watching SCT, didn't buy any last year in the end though I have been keeping an eye on them since, esp lately as they started falling below $3. Seems it's the high NZD that's hurting them more than anything else. However maybe the NZD has peaked? Depends on how our economy goes from here and how much more the USD falls, but surely any fall in the kiwi can only be good for SCT, eventually.

    Disc: Hold none, but watching closely

  4. #4
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    quote:Originally posted by belgarion

    Hmm. Both stop losses fired. Now hold just 33% of original holding. Shame. THis company has been good to me. No matter, I still feel this is a good company and have cash ready and waiting when good news makes an appearance. I just can't see SCT mgnt sitting on the hands given the probs they face. The probs aren't that significant IMHO and SCT will bounce back.
    Seems to me a rather conservative stop loss to have on what was supposedly a long-term portfolio.

  5. #5
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    I have pulled a non charting 'Scott Technology' thread out of the archives. That is really because I don't think Scott Technology is a good trading share because of poor liquidity. Last Friday only 95 (not a misprint) shares were traded! I dare not think how much less than a marketable parcel 95 shares is.

    This thread starts with 'out to lunch' suggesting SCT was a 'screaming buy' at somewhere near $3 on 30/04/2004. Yet now the share price has retreated to a '$1.82 buy and $1.85 sell' spread, this same share barely gets a mention on this forum. For those who like the FA statistics $1.82 today represents an historic PE of 15. That is greater than the 12.5 PE when SCT was regarded as a 'screaming buy' at $3 two and a half years ago. Consequently I don't think SCT is a 'screaming buy' at close to $2. I am buying more for portfolio rebalancing purposes. But if you believe that exporting from NZ has any future then I think SCT is worth accumulating at around this $2 level.

    I notice the engineering director, Kevin Kilpatrick, sold all of his shares late last month. Ordinarily an insider 'selling out' like that is not good news. However, Kilpatrick has already signalled his retirement from the company to go 'grape growing' in Marlborough in August 2008. Given he is still a director of Scotts, Kilpatrick had a limited window of opportunity to 'sell out' while the company annual results are fresh. If he had waited he could have been accused of insider trading. So I don't think Kilpatrick selling out to fund his new grape growing activities in Marlborough should necessarily be seen as a loss in confidence in Scott Technology itself.

    Kilpatrick selling out of 170,000 odd shares during 2007 has worked well for me because I have been buying SCT shares in trickles all year - boosting my own holding in this company by something like 80% in the process. My average purchase price of these 'new' shares was $2.07. That doesn't look very clever if you consider the current buy price is $1.82. But that is assuming that I could have bought the number of shares I did buy at 'todays price' of $1.82. And that would not have been possible. It also ignores the dividends that I have accumulated during the year, which makes my 'theoretical loss' (it was a 'theoretical profit' two weeks ago) much less painful. I know that I couldn't have bought my shares at $1.82 because it has taken over a month for me to buy my 'November tranche', a very modest number of shares on market at a price around $2.

    So when do I expect my profit margin on my latest SCT acquisition to rise into the black again? I have no idea. But I am prepared to wait. And if the market weakens further I am prepared to buy more shares in the interim. I don't know if buying SCT shares at $2ish today will look clever in two and one half years time or not. But I think it is more likely to look clever than buying SCT at $3 looks now, viewed with two and one half years of hindsight.

    SNOOPY

    discl: hold SCT
    Last edited by Snoopy; 16-05-2008 at 06:12 PM.
    To be free or not to be free. That is the cash-flow question....

  6. #6
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    Quote Originally Posted by SectorSurfa View Post
    interesting to read the old threads and thoughts

    *first sign of avoid would have been the appearance of Belgarion holding/ spruiking SCT

    good post Snoopy, and good luck, are you seeing the NZD getting weaker the major SP driver going forward?
    A weaker NZD/USD relationship would help SectorSurfa, but who knows when or if that will happen? RBNZ Governor Bollards comments re NZ interest rates last week seem to have pushed the NZD/USD relationship the other way. That is possibly why some selling pressure has emerged in SCT over the last few days.

    Of more concern to me is the NZD/EURO relationship as the two competitors globally that SCT have operate out of Italy and Spain respectively. As long as Scott's competitive advantage is maintained relative to those two European based competitors, I think that Scotts will be able to compete whatever happens to the NZD/USD exchange rate.

    New CEO Chris Hopkins is onto the exchange rate problem anyway and has embarked on a strategy of sourcing more of the raw material input costs directly from overseas. Also SCT are looking for a domestically orientated business acquisition to smooth some of the peaks and troughs of workload that come with being so overseas focussed.

    When it comes down to it, I guess I am backing on the existing employee skills base to work their way around whatever problems the market throws at them. I am betting on the robotics division finally making a meaningful contribution to profit. And with the retirement of Chairman Marsh, after 38 years at the helm, I am betting on the new governance broom revving the company up a bit.

    SNOOPY

    discl: hold SCT
    To be free or not to be free. That is the cash-flow question....

  7. #7
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    There has been some comment on other threads about SCT being a great place to put money to take advantage of the NZD weakening. So I thought an update was overdue.

    ----------

    GENERAL: SCT: Securing an order from a major appliance manufacturer

    2 May 2008

    Dear Sir/Madam

    Scott Technology Limited are pleased to announce it has secured key contracts
    for the supply of equipment into the international market. These contracts
    have been gained despite the difficult trading environment that was indicated
    at both the Annual Meeting in December and in the interim announcement in
    April.

    Scott has secured an order from a major appliance manufacturer in Brazil
    worth several million dollars. It is expected that the manufacturing line
    will be completed and shipped at the end of 2008 and installed in early 2009.

    In addition, Scott has secured an order for its meat processing side of the
    business to supply multiple beef de-boning products to a customer in
    Australia.

    Yours faithfully

    Stuart J McLauchlan (Chairman) Christopher C Hopkins (Managing Director)

    ---------

    The above news is certainly good for SCT in securing the continuity of the workforce which is SCTs best asset. However it is no surprise to me that the share price has not moved. Because these projects would have been secured at the high exchange rates prevailing earlier in the month. If management behave according to historic precedent then they will have hedged these two new contracts already. So any depreciation of the NZD will not help the profitability of these projects or the bottom line of SCT. Indeed these two contracts may have been secured at minimal profit or even a small loss.

    Where the NZD decline will help is in the next project. I think SCT has turned the corner. Until that next project is announced, though, I wouldn't be looking for any big moves in the share price.

    SNOOPY

    discl: hold SCT
    Last edited by Snoopy; 16-05-2008 at 10:49 AM.
    To be free or not to be free. That is the cash-flow question....

  8. #8
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    SCT are about to move into their new larger premises in Dunedin...
    Last edited by Steve; 16-05-2008 at 06:12 PM.
    Death will be reality, Life is just an illusion.

  9. #9
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    Quote Originally Posted by Snoopy View Post

    GENERAL: SCT: Securing an order from a major appliance manufacturer

    2 May 2008

    Scott Technology Limited are pleased to announce it has secured key contracts for the supply of equipment into the international market. These contracts have been gained despite the difficult trading environment that was indicated at both the Annual Meeting in December and in the interim announcement in
    April.

    Scott has secured an order from a major appliance manufacturer in Brazil worth several million dollars. It is expected that the manufacturing line will be completed and shipped at the end of 2008 and installed in early 2009.

    In addition, Scott has secured an order for its meat processing side of the business to supply multiple beef de-boning products to a customer in Australia.

    ---------

    these two contracts may have been secured at minimal profit or even a small loss.
    Significant news from SCT today. They are to become suppliers to the mining industry!

    26/05/2008
    TAKEOVER

    REL: 1328 HRS Scott Technology Limited

    TAKEOVER: SCT: ACQUISITION OF ROCKLABS

    The Directors of Scott Technology Limited are pleased to announce that they have completed satisfactory due diligence for the acquisition of the business of Auckland based manufacturer, Rocklabs Limited. The remaining outstanding
    conditions of sale are expected to be satisfied during the month of June.

    Rocklabs are manufacturers of mechanised and automated sample preparation equipment and suppliers of gold reference materials to the mining industry. Manufactured products include rock crushers, ring mills, sample dividers and integrated systems. Rocklabs are based in Onehunga, Auckland and employ 35 staff, plus it has a network of nearly 30 sales agents worldwide. Rocklabs exports virtually all of its production and has customers in 98 countries.

    Both Scott Technology and Rocklabs have a strong focus on product quality which is one of the factors that attracted Scott Technology to Rocklabs. While Rocklabs supply the mining industry which has not traditionally been the domain of Scott Technology, both companies share a common core business of engineering and automation.

    Part of Rocklabs' business strategy is to move towards greater automation of their products and systems. This is an area in which Scott Technology can provide enhanced design and technical expertise.

    The current owner of Rocklabs, Dr Ian Devereux, will remain with Rocklabs in a management and technical role while Scott Technology intend operating Rocklabs as a standalone subsidiary with few changes to its current operating structure.

    The consideration for the purchase will be a mixture of cash and shares in Scott Technology and the transaction will be earnings positive for the Scott Group.

    ---------

    I'm disappointed we do not know how much cash or how many shares are going to be issued to acquire Rocklabs. Perhaps adding the rider that:

    "the transaction will be earnings positive for the Scott group."

    means that management have decided that they don't need to tell us. I would turn that around.

    Even given I know nothing about 'Rocklabs' I'm picking that the previous owner Devereux is making good profits now and will not be selling out cheaply. If buying into Rocklabs is 'earnings positive' from day one, that must mean that the current profitability on the rest of the SCT business, production line design build and installing and the meat processing robots, is minimal! Oh dear, it is hard to see the SCT share price reacting positively to this announcement.

    SNOOPY

    discl: hold SCT
    Last edited by Snoopy; 26-05-2008 at 01:25 PM.

  10. #10
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    Quote Originally Posted by Steve View Post
    SCT are about to move into their new larger premises in Dunedin...
    Are you based in Dunedin Steve? If so how much do you reckon the old site is worth?

    SNOOPY
    To be free or not to be free. That is the cash-flow question....

  11. #11
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    I would have thought it was pretty good news. From what I know, Rocklabs is fairly similar business to ASX:ESS - a company which has performed rather well in recent years.

    I think this will create some interest in SCT - though whether the transaction was at a fair price or can be integrated successfully with SCT current business is difficult to tell.

  12. #12
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    Quote Originally Posted by Snoopy View Post
    Are you based in Dunedin Steve? If so how much do you reckon the old site is worth?

    SNOOPY
    Unfortunately, SCT rent the premises from a company associated with Graeme Marsh who was involved with SCT for years.

    I believe that the new premises will also be rented from interests of graeme as well, so Graeme will most likely end up being the major winner here...
    Death will be reality, Life is just an illusion.

  13. #13
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    Quote Originally Posted by Snoopy View Post
    I'm disappointed we do not know how much cash or how many shares are going to be issued to acquire Rocklabs. Perhaps adding the rider that:

    "the transaction will be earnings positive for the Scott group."

    means that management have decided that they don't need to tell us. I would turn that around.

    Even given I know nothing about 'Rocklabs' I'm picking that the previous owner Devereux is making good profits now and will not be selling out cheaply. If buying into Rocklabs is 'earnings positive' from day one, that must mean that the current profitability on the rest of the SCT business, production line design build and installing and the meat processing robots, is minimal! Oh dear, it is hard to see the SCT share price reacting positively to this announcement.
    Well no ultimate positive reaction as I anticipated. In fact someone dumped 10,000 SCT shares late on Friday sending the share price down to a new low of $1.12. Perhaps the following announcement had something to do with it:

    ------------

    The Directors of Scott Technology Limited advise that the company is to reduce staff numbers by approximately twenty across its Dunedin and Christchurch sites. Three quarters of these redundancies are voluntary.

    Management undertook a lengthy consultative process involving staff and the EPMU. Management considered the current and anticipated trends in each of its revenue streams and has been able to focus redundancies on under-performing and non-core parts of the business. The level of voluntary redundancies has greatly assisted this process.

    Following the completion of this process, Scott Technology Limited's staff numbers will be approximately 60 in Dunedin, 70 in Christchurch and 35 at newly acquired subsidiary, Rocklabs, in Auckland; a total of approximately 165 staff.

    Scott Technology Limited is experiencing a change in its business model, with less demand for the traditional machining and fabrication parts of the business and greater demand for our innovation, design and robotics skills.

    Lower worldwide demand for appliances has resulted in appliance manufacturers reducing or cancelling capital expenditure on new production lines. This has impacted on our Christchurch based appliances division over the last nine months. While we are faced with reducing staff numbers now, we are also continuing to pursue new opportunities for our appliances division, particularly in China and Europe, albeit with long lead and build times.

    However, opportunities for our automation and robotics division continue to be plentiful and underlie the increasing demand for our innovation, design and robotics skills. We have recently won a contract to build a robotic welding cell for a New Zealand based equipment manufacturer and are undertaking the development of new automated processes for the dairy industry.

    Significant progress also continues to be made with the automated boning room systems for the meat industry and we anticipate being able to announce further sales in the near future.

    With the continuing growth of the mining industry, newly acquired Rocklabs is showing excellent results. Our automation division is currently working on a major laboratory analysis system which will add a robotic interface to one of Rocklabs' existing systems. We see these jointly developed automation systems as being a significant contributor to the Scott Group in the future.

    Many of these automation and robotics systems are heavily biased towards "front end" design, rather than final manufacture which has driven the need to reduce staff numbers.

    Despite the need to reduce staff numbers, the Directors and management remain very confident of Scott Technology Limited's future prospects.

    Yours faithfully

    Chris Hopkins
    Managing Director
    End CA:00166695 For:SCT Type:GENERAL Time:2008-06-27:16:05:50

    -----------

    The problems that SCT face are mirrored by every other exporter, not tied to the dairy industry. In fairness SCT look like they are adapting better than most, even though these adaptations will take time to flow through to the bottom line.

    The breakdown in staff numbers:

    60 in Dunedin (Robotics),
    70 in Christchurch (Appliance Production Lines) and
    35 at Rocklabs (Mining Industry), in Auckland

    is very interesting and not something I have seen disclosed before. It seems unfortunate that SCT are moving to a bigger and brighter premesis in Dunedin just as the downturn bites. I hope thay haven't lost key personnel in the workforce downsizing! The offer of voluntary redundancy seems to have been made across the two south island sites rather than targeting the appliance division where the main downturn in work is perceived. Mind you we don't know the 'before redundancy' workforce breakdown. So perhaps my interpretation of what SCT wants to achieve has the wrong spin.

    Still no announcement on the final 'cash and shares terms' associated with the Rocklabs acquisition. Until that comes out, plus some indication of the new cost structure associated with the move to the new Dunedin base, valuing the new combined group will be difficult.

    SNOOPY

    discl: hold SCT
    Last edited by Snoopy; 28-06-2008 at 10:20 AM.
    To be free or not to be free. That is the cash-flow question....

  14. #14
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    Quote Originally Posted by Snoopy View Post
    Significant news from SCT today. They are to become suppliers to the mining industry!

    26/05/2008
    TAKEOVER

    REL: 1328 HRS Scott Technology Limited

    TAKEOVER: SCT: ACQUISITION OF ROCKLABS

    <snip>
    The consideration for the purchase will be a mixture of cash and shares in Scott Technology and the transaction will be earnings positive for the Scott Group.
    <snip>
    ---------

    I'm disappointed we do not know how much cash or how many shares are going to be issued to acquire Rocklabs.
    More details of the payment to Rocklabs has come out. 3,313,452 shares have been issued at a price of $1.2072. I calculate that 'payment' to be worth.

    3,313,452 x $1.2072 = $4m

    Some of those shares are temporarily in escrow pending the profit performance of the new acquisition. That is all the information we know for sure. But I'm prepared to guess some more details. Say half of those shares will only be released upon profits reaching a certain level. That means $2m worth of shares now and $2m worth shares later. Possibly the cash part of the deal matched the initial shares issued, let's say $2m. That makes a nice ultimate retirement nest egg for Rocklab's founder, Devereaux. A $2m cash payment is quite manageable by SCT,without moving them too far from their previous 'debt free' position.

    Annual earnings of some 0.08 x $2m = $160,000 would be needed to cover a $2m debt and we can assume that Rocklabs as a stand alone business unit is capable of banking that much right now.

    A USD:NZD exchange rate of under 70c is encouraging for all exporters. Although I note previous chairman Marsh was complaining bitterly at the end of 2006 when the exchange rate was a low as 64c! Can SCT make any decent money at these exchange rates?

    For the newly acquired Rocklabs division the answer is yes. They are doing it now and the weakening of the NZD:AUD exchange rate will do that division no harm. For the appliance production line division productivity improvements have been made. But I predict that division will remain subdued in profitability until housing markets worldwide and the associted boost in new whiteware that goes into a new house look to improve. Nevertheless SCT should be one of the first companies to feel any upturn because of the long lead time between building a production line and the appliances it makes hitting the showroom.

    The meat industry joint venture with PPCS has been thrown a curved ball with Craig Norgate entering the industry via the proposed PPCS merger with PGG Wrightson. Ultimately I expect this to work out positively for SCT, and again the recent NZD:AUD exchange rate drop will help. Australia is targeted as a big potential market for meat industry robotics.

    All this has given me the confidence to continue accumulating SCT shares, at the right price. My holding is now twice what it was only a year ago! But it is a painfully slow process. My latest order for only a very few thousand shares took a week to fill, and was only finished today!

    I was looking for more diversification in my 'nz exporter' portfolio. With the addition of Rocklabs, SCT now provides that diversification across three quite different industry fronts.
    The low liquidity means SCT is very hard to accumulate. So waiting for the share price to turn is not really an investment option. The SCT share price was forced down by the effective liquidation of substantial shareholder 'Walker Capital Management'. Management have been in there buying at prices between $1.10 and $1.20. Term debt is zero to minimal, so the company will not be put under pressure in any worsening credit crunch. For me all the ducks are lining up. Don't let anyone say I didn't tell you so.

    SNOOPY

    discl: hold SCT. Will buy still more SCT if the share price weakens any further!
    To be free or not to be free. That is the cash-flow question....

  15. #15
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    [QUOTE=Snoopy

    This thread starts with 'out to lunch' suggesting SCT was a 'screaming buy' at somewhere near $3 on 30/04/2004. Yet now the share price has retreated to a '$1.82 buy and $1.85 sell' spread, this same share barely gets a mention on this forum. For those who like the FA statistics $1.82 today represents an historic PE of 15. That is greater than the 12.5 PE when SCT was regarded as a 'screaming buy' at $3 two and a half years ago. Consequently I don't think SCT is a 'screaming buy' at close to $2. I am buying more for portfolio rebalancing purposes. But if you believe that exporting from NZ has any future then I think SCT is worth accumulating at around this $2 level.
    Kilpatrick selling out of 170,000 odd shares during 2007 has worked well for me because I have been buying SCT shares in trickles all year - boosting my own holding in this company by something like 80% in the process. My average purchase price of these 'new' shares was $2.07. That doesn't look very clever if you consider the current buy price is $1.82. But that is assuming that I could have bought the number of shares I did buy at 'todays price' of $1.82. And that would not have been possible. It also ignores the dividends that I have accumulated during the year, which makes my 'theoretical loss' (it was a 'theoretical profit' two weeks ago) much less painful. I know that I couldn't have bought my shares at $1.82 because it has taken over a month for me to buy my 'November tranche', a very modest number of shares on market at a price around $2.

    So when do I expect my profit margin on my latest SCT acquisition to rise into the black again? I have no idea. But I am prepared to wait. And if the market weakens further I am prepared to buy more shares in the interim. I don't know if buying SCT shares at $2ish today will look clever in two and one half years time or not. But I think it is more likely to look clever than buying SCT at $3 looks now, viewed with two and one half years of hindsight.

    SNOOPY

    discl: hold SCT[/QUOTE] A good lesson to be learned here about the worth of fundamental analysis without having any sell strategy when it all turns to custard. Needless to say most TA investors are sitting the market out watching the slaughter. Plenty of opportunity to average down in this market SNOOPY. Macdunk

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