Scales - SCL

[winner69]

This is not the sort of business you will be happy to invest in W69.Best to sell,move on and save us all from your moral raves,should Scales not meet your "highly concentrated portfolio's 30% to 40% expectations".
1]All white male board.
2]No diversification.
3]Annual report ,and all communications written and spoken in English only.
4]CEO on over $150,000 pa pay.
5]Reliant on cheap imported labour to pick the crop.
6]No over the top financial projections.
7]The company is looking for 15%ROE,far in excess of your acceptable under 10%.
Please stay away,and let others enjoy investing in this company.....,

3) weren't many pictures either!!!
6) at least their forecasts (still tied to IPO numbers) seem a honest sort of guidance.
7) ROIC not a problem --- deserve to make decent money as the reward for being productive and making actual stuff and adding value to stuff and exporting stuff. Good for the economic well being of this great country. I have no problem with that

[winner69]

Please stay away,and let others enjoy investing in this company.....,

Geez mate that's not nice.

You telling me to f### off then?

[PSE]

Winner is always welcome.

Scales is now my largest holding. I simply don't see much in the way of short term downside.
-With 33% of apples sold, it looks as if prices and volumes are holding up on last year.
-The coolstore business has bounced back (as expected) after a poor 2014
-The currency fall against many of the trading partners (but most importantly the USD) will really drive profitability going forward.

Therefore I expect FY15 PFI forecast to be easily beaten. I estimate they are currently trading on a FY15 pe=10. I also expect brokers are being very conservative with their forecasts. Thus I see broker upgrades by the end of the year. Currently, the average broker target is $2.

They will pay 12c of dividends and 4.7c of imputation credits = 16.7c in the next 6 months. (dividend strippers take note)

Going into FY16, there are many growth initiatives in plan to keep the momentum going. The major initiatives are:
-increased premium apple supply
-$30m Auckland coostore

If they do reach the 12 months broker target of $2, there would be 27c (share price appreciation) + 16.7c (dividend) = 43.7c return on the last close of $1.73. That is a potential 25% upside. But given I think broker estimates are conservative, that may just be a starting point.

Noodles I started going through the thread but all the death crosses and moving averages gave me a headache.
Scales is recently floated but it is not as rubbish as most IPOs in a hot market as it came out of Hubbard's empire, more crony capitalism no-one offered it to me on the cheap.
In Peter Lynch's terms would you consider SCL a fast grower or a stalwart and if it's a fast grower why and how?
Do you know about the tasty apple brands, noticed them in the supermarket? Do you work in the industry and know that there are new export markets opening up?
On the face of it a cropping business is a little more unstable than others subject as it is to the vaguaries of weather, what has happened in the past? How often does the company get bad seasons or random political factors like the American empire being aggressive against the Russians who shouldn't be in Ukraine?

It's not enough for me to buy on the basis of an analyst estimate as by definition the future of shareprices represents what they don't know, presumably they have priced all the things you mention pretty well.

You could say that Bill Gates is a value investor but only because he had a special insight into microsoft. This sort of insight is how Peter Lynch made is career and recommended that small investors may have an edge.

I don't see your edge.

[Beagle]

Geez mate that's not nice.

You telling me to f### off then?

Uncle Percy is a nice guy mate. I am sure the comment he made was firmly tongue in cheek

[PSE]

Not that I am saying it is a bad company if the analysts forecasts turn out as planned you will do OK for sure. Without the history or knowing the industry I have no way of evaluating if this is the case.

[noodles]

The pe quote is based on my estimate.
Last year the horticulture Division sold $158m worth of apples. 97% went overseas. That result was achieved with a USD at 82c. Now consider how much extra revenue they will achieve at a USD rate close to 70c. Volumes and USD pricing being equal, we should see most of that extra revenue going straight to the bottom line.

Is it not as simple as that as there are multiple currencies, forward cover, and shipping rates to consider, but it illustrates the leverage to falling NZD. #tailwind

The table below highlights the currency impact on Scales profitability. To simplify the situation, I assume Scales receives the same price in the foreign currency as last year and produce the same amount of apple. Additionally, the shipping costs will be the same as last year.

In theory all additional revenue should go to the bottom line. If this perfect scenario came to pass, we would see an additional earnings per share of 6.9c. Add that to FY14 15.3c+6.9c = 22.2c

Now that would put Scales on a pe = 7.7. Food for thought.

		2014 fx rate	Revenue (NZD)	Current fx rate	Est Revenue	Increase
USD	44.00%	0.82	69876	0.7	81854	11979
Euro	33.00%	0.6	52407	0.62	50716	-1691
UK	20.00%	0.49	31762	0.45	34585	2823
CAD	3.00%	0.9	4764	0.86	4986	222
			158808		172141	13333
tax						3733.231513
NPAT						9600
Additional eps						0.069

[winner69]

And they get more for all that dog food as well

[noodles]

Winner is always welcome.



Noodles I started going through the thread but all the death crosses and moving averages gave me a headache.
Scales is recently floated but it is not as rubbish as most IPOs in a hot market as it came out of Hubbard's empire, more crony capitalism no-one offered it to me on the cheap.
In Peter Lynch's terms would you consider SCL a fast grower or a stalwart and if it's a fast grower why and how?
Do you know about the tasty apple brands, noticed them in the supermarket? Do you work in the industry and know that there are new export markets opening up?
On the face of it a cropping business is a little more unstable than others subject as it is to the vaguaries of weather, what has happened in the past? How often does the company get bad seasons or random political factors like the American empire being aggressive against the Russians who shouldn't be in Ukraine?

It's not enough for me to buy on the basis of an analyst estimate as by definition the future of shareprices represents what they don't know, presumably they have priced all the things you mention pretty well.

You could say that Bill Gates is a value investor but only because he had a special insight into microsoft. This sort of insight is how Peter Lynch made is career and recommended that small investors may have an edge.

I don't see your edge.

The best place to go to understand the company is straight to the prospectus and recent annual report. While I don't work industry, I have read the documents published in detail and spoke to management.

Not including the currency benefits, I think Scales can grow their business at an annual rate of close to 10% with the additional capital available from the IPO and organic growth. I expect acquisitions as well. So definitely not a stalwart.

There are numerous risks in the horticulture business. Pests, exchange rate, weather, apple prices etc. Scales has managed to navigate the Russian situation very well. Apples have traditionally been commodity products. That is now changing as NZ apples can demand a premium. Their orchards are spread out across the Hawkes Bay, so hail damage should be minimal. They have irrigation systems to help them during droughts.

Australia is a key upside risk. If we can get better access to this market, it would be a massive bonus. There are a few apples making it into Australia at the moment, but I think we should be conservative here. Asia is currently setting the price premium for Mr Apple. And they simply can't get enough of our apples.

My edge? I don't have an edge. All the information that I have is in the public domain. I just think the market is inefficient. This is a small cap stock in a market enthralled by tech and power companies. If I can steal a stevefleming quote. "Share price follows earnings growth". I can see earnings increasing at Scales, thus I expect the share price to grow. I am comforted by a low pe and high dividend yield. That is my safety net.

[percy]

And they get more for all that dog food as well

W69 the dog's welfare champion,too!??

PS.
You are not the only one who can rant and rave,but it a bit much when you are critical of greedy businesses, looking for higher than 10% ROE, or ROC, while chasing 30% to 40% yourself.
Also you may not be aware the SCL's CEO is an ex banker.!
Moral issues should be discussed on an off market thread.

[Beagle]

The table below highlights the currency impact on Scales profitability. To simplify the situation, I assume Scales receives the same price in the foreign currency as last year and produce the same amount of apple. Additionally, the shipping costs will be the same as last year.

In theory all additional revenue should go to the bottom line. If this perfect scenario came to pass, we would see an additional earnings per share of 6.9c. Add that to FY14 15.3c+6.9c = 22.2c

Now that would put Scales on a pe = 7.7. Food for thought.

		2014 fx rate	Revenue (NZD)	Current fx rate	Est Revenue	Increase
USD	44.00%	0.82	69876	0.7	81854	11979
Euro	33.00%	0.6	52407	0.62	50716	-1691
UK	20.00%	0.49	31762	0.45	34585	2823
CAD	3.00%	0.9	4764	0.86	4986	222
			158808		172141	13333
tax						3733.231513
NPAT						9600
Additional eps						0.069

Very good analysis there mate. I would venture to suggest that all the risk to the currency is too the downside, (with potentially another two or three reductions in the OCR over time), and accordingly all the risk to eps gains is to the upside.

Its very tempting to have another bite of this juicy prospect. (note to self, how can I resist using all these weak puns ?).