SCT - Scott Tech

[Snoopy]

I think the 'price sensitive' bit from Scotts would have related to the financial information disclosed accompanying the announcement, rather than Cameron moving on.

Given the price sensitive information released on 26th March and the subsequent 'soggy share price' I thought my interpretation of what was said (below) might be of interest:

"The business has been performing well during the period and we are expecting to announce double digit growth at both the revenue and EBITDA level. Borrowing, depreciation and lease costs will be higher than for the same period last year due to the positive momentum of the Scott Group’s underlying growth and performance. The company continues to experience positive growth drivers across all core sectors. Further information will be provided when we announce the half year results” commented Mr McLauchlan."

I am not surprised that lease costs will be higher, given over the last year Scott Europe have moved their Czech Republic unit to a much more spacious site in Podivin. Furthermore Rocklabs seems to have moved to a new leased site in the Auckland Airport precinct, from what I believe were company owned facilities also in Auckland. I am not sure of the fate of the company owned industrial premises in Auckland following this move. Under IFRS16 reporting standards, what used to be called rent has been 'split reclassified' as both a finance expense and a depreciation of a right to lease asset. This has the effect of increasing EBITDA in comparison with pre-IFRS16 reporting periods. This in turn means that any capital transaction that increases rent will likely increase EBITDA as well, because the earnings benefits of the more productive new premises flow straight to EBITDA but the associated increased costs do not.

Chairman McLauchlan was careful not to mention 'net profit after tax' in his announcement. That and the fact that the last major contract win (something that Scott's are usually keen to 'get out there' by way of a press release) was announced in the previous half year (3rd August) would suggest that even if Scott's have been 'trucking along fine' for six months, the next year may have a more sombre growth profile. So I would not be surprised if earnings go into a 'holding pattern' for the next 12-18 months. Adding to my speculation here is McLauchlan's use of the word 'core' as in:

"The company continues to experience positive growth drivers across all core sectors."

It is well known that under Chief Executive JK's leadership, the appliance production line business, that used to provide the majority of company earnings not that many years ago has been labelled 'non-core'. So if all of those clever engineering staff that put together these things are not being fully utilised, we have a temporary hit on profits right there.

This share is another of my 'silver anniversary' holdings, where I have held the shares for more than 25 years (albeit not in the quantities I do now). So even though I have 'lost money' on the shares I purchased at $3 the other day, my average holding price has only increased to 95.1c per share (excluding all dividend payments over the years). Having said that, I have now built my holding up to a level where I want it to be. So I won't be in the market for any more SCT shares myself for the foreseeable future. My estimate is that Mr Market is pricing these shares where they should be priced on an earnings basis for now. SCT today is what I would call a classic 'hold'.

SNOOPY