SCT - Scott Tech

[Snoopy]

Premium!!????
On your EPS of 12.8cents todays PE at SP of $2.24 is 17.5.!!!!!!
On PE of 10 the SP would be $1.28 and on a PE of 12 the SP would be $1.53.
So looks a rather large premium to me.

I think it all depends on what you see as a 'normal operating point' for SCT. To me the most interesting part of the accounts is note 25, the segment information. Standard Equipment (mainly Rocklabs) has suffered a profit fall from $8.556m to $5.413m. But automated equipment (mainly appliance production line systems) has gone from a mere $34k to $2.099m. To me the company looks a lot more balanced now than it did last year.

There were many years in the past when the appliance production line profits have been 50% higher than FY2013. And if Rocklabs can get back to FY2012 levels of profitability we are looking at a 50% rise in profit from that part of the company as well. So pretty big growth potential from the core business plus all the high tech projects thrown in for free. $2.24 to me looks in no way expensive. But $2.60 potentially was a little dear, which is why I offloaded some shares at those levels. I won't be selling any more at $2.24!

SNOOPY

[percy]

I think it all depends on what you see as a 'normal operating point' for SCT. To me the most interesting part of the accounts is note 25, the segment information. Standard Equipment (mainly Rocklabs) has suffered a profit fall from $8.556m to $5.413m. But automated equipment (mainly appliance production line systems) has gone from a mere $34k to $2.099m. To me the company looks a lot more balanced now than it did last year.

There were many years in the past when the appliance production line profits have been 50% higher than FY2013. And if Rocklabs can get back to FY2012 levels of profitability we are looking at a 50% rise in profit from that part of the company as well. So pretty big growth potential from the core business plus all the high tech projects thrown in for free. $2.24 to me looks in no way expensive. But $2.60 potentially was a little dear, which is why I offloaded some shares at those levels. I won't be selling any more at $2.24!

SNOOPY

I think your post is important as it shows there is a lot more to SCT than just figures.
When any of us have a full understanding of the business we are investing in,then the risks reduce.
The main part of good research/knowledge is being able to react to it before the market fully understands it,whether it means buying more shares or selling shares if the results are not what we expect.
I do not fully understand SCT,so am more inclined to look at the figures,rather than the business.
I may have to get to an AGM,met the people and hear what they have to say.Going to Cavotec meetings,getting to understand the business,meeting management and listening to them has been most profitable.

[Snoopy]

I do not fully understand SCT, so am more inclined to look at the figures, rather than the business.

Entirely understandable Percy and may I say I would do exactly the same thing with a company that I am not well acquainted with [ like HNZ for example ;-) ]

However, I do appreciate being challenged on my views of SCT. My instinctive line of defence is to behave as a management parrot. But on further reflection I do get around to double checking that management rhetoric just to see that what they are telling me is really true. I have done a bit more homework on the 'standard equipment' side of the business (mainly Rocklabs). Here are the half yearly profit and revenue figures as far back as they are quoted:

1HY2010: $0.372m, $6.073m
2HY2010: $1.468m, $9.716m
1HY2011: $1.766m, $2.538m
2HY2011: $2.538m, $11.739m
1HY2012: $4.304m, $9.714m
2HY2012: $4.252m, $24.565m
2HY2013: $2.644m, $14.425m
2HY2013: $2.708m, $13.270m

That shows me that FY2012 was a bit of a blip in sales and profits. I think much of that time was a boom time for gold producers which is apparently the main industry that Rocklabs sells to. I guess it is no surprise that eventually the 'end of the golden weather' (sic) is upon us. Whether the gold producer market will recover, or whether Rocklabs will be able to recalibrate their equipment to better suit analysis of other metals will be interesting to see. However, it does seem for the moment that the substantial growth engine that was driving the SCT share price (Rocklabs) has been derailed.

The other half of the business that makes profits, 'Automated Production Systems for Appliances' fortunately for we shareholders is undergoing a good revival. So despite the derailing of Rocklabs from its recent stellar trajectory, my feeling is that we already holding SCT will be OK. If I didn't hold any SCT shares though, I think I would be tempted to sit on the sidelines just in case the share price got a bit cheaper!

SNOOPY

[Snoopy]

The other half of the business that makes profits, 'Automated Production Systems for Appliances' fortunately for we shareholders is undergoing a good revival.

The one jarring statistic from the segmental results is the decline in sales to Asia

FY2013: $1.624m
FY2012: $4.155m

Yet didn't Scott's relocate their head of appliances to China only two short years ago? Has he frightened off the Chinese customers!

SNOOPY

[ace5715]

The cyclic nature of the appliance equipment business means these figures will go up and down depending on projects, most customers needs machinery in approx 35-50 weeks depending on size of project. The 4 automated lines going to the USA means they probably don't have capacity and any Asian work would need to be placed in a queue until resource is available hence the decline in Asian sales for FY2013.

With Fisher and Paykel now owned by Haier Scott's will struggle to get direct sales from Haier who they have previously worked for.

[Snoopy]

The cyclic nature of the appliance equipment business means these figures will go up and down depending on projects, most customers needs machinery in approx 35-50 weeks depending on size of project. The 4 automated lines going to the USA means they probably don't have capacity and any Asian work would need to be placed in a queue until resource is available hence the decline in Asian sales for FY2013.

With Fisher and Paykel now owned by Haier Scott's will struggle to get direct sales from Haier who they have previously worked for.

Yes good points Ace. Have come back from the Dunedin AGM now, and was surprised to see an appliance production line system on the floor down there, not too far away from being shipped. I was told that Christchurch, where these production lines are normally put together, was currently 'at capacity'. While 'at a pinch' they could squeeze in another production line in Dunedin they are fairly busy with their own projects at Kaikouri valley. Your 'working to capacity' argument looks like the explanation for the imagined slowdown in Asia!

SNOOPY

[Snoopy]

Have come back from the Dunedin AGM now

ODT as usual has the best write up on the AGM

http://www.odt.co.nz/news/business/2...rs-5m-rd-grant

Not too much more than I can add. Chairman Stuart McLauchlan was clear that with 5 existing divisions (Appliance Lines, Mining Services, Meat industry robotics, Milk industry robotics and General industrial robotics) Scott's aren't planning to spread their circle of competence any further. There is more than enough potential now to just concentrate on what they have got going.

SNOOPY

[Marilyn Munroe]

I too was at the AGM.

During the factory tour following the meeting I had the chance to chat with the big pooh-bar from their joint venture into superconducting magnets.

The most impressive thing he told me is that these magnets are likely a disruptive technology in magnetic resonance imaging machines(MRI).

Current MRI machines require super cooling to operate. The only means of doing this currently is to use liquid helium. This creates several problems.

Helium is an expensive gas, supplies are becoming constrained and source countries are beginning to regard it as a strategic material.

When helium escapes containment it reacts in a manner that resembles an explosive. This means means MRI machines must be housed in expensive specialised buildings.

You can not turn off MRI machines even if they are not being used.

The magnets being developed by the Scott joint venture can be cooled with liquid nitrogen, This has several advantages;

Liquid nitrogen is cheap and abundant. just suck if from the air around you.

It behaves in a less vigorous manner when it escapes containment so the building housing it need not be as specialised or expensive.

When you are not using it it can be turned off.

The technology is not yet sufficiently advanced to enable it to be used in the full scale MRI machines which you are probably familiar where the patient is feed through the hole in the do-nut shaped machine for a full body scan. They are currently developing a prototype machine which can perform an MRI on hand sized parts of the body. When they are able to scale up this technology I beleave they will be on to a winner.

Boop boop de do
Marilyn

[Snoopy]

I too was at the AGM.

During the factory tour following the meeting I had the chance to chat with the big pooh-bar from their joint venture into superconducting magnets.

The most impressive thing he told me is that these magnets are likely a disruptive technology in magnetic resonance imaging machines(MRI).

Yes it was such a comprehensive display of capability laid on after the meeting it was quite hard to take it all in. I overheard a bit of what Ty Hasheer, otherwise known as the big pooh-bar of superconducting technology, said and it promptly went out my other ear so I am glad Marilyn was paying attention!

Stuart McLauchlan commented that Ty's section had seven new lines of products aimed at seven all new markets. Normally one new product in an existing market or an existing product sold into a new market is challenge enough. So Ty will certainly have his hands full!

We were also told not to be too expectant over the speed of adoption of all the new technology.

The automated meat room project has been running for near on ten years and was divided into five sub projects:

1/ X-ray
2/ Primal cutting
3/ Middle machine
4/ Forequarter
5/ Hindquarter

The first middle machine was only installed commercially last week. Sorting out robot wrist moving issues was one of the unexpected technical delays. So it is really only now that a complete 'automated meat room package' has been available.

Our expectations were also dampened on the "automated milking system add on" joint venture. The 80 bail rotary milking shed is now up and running. A limited number of commercial sites should roll out in 2015. But serious profits might have to wait for a few years beyond that.

SNOOPY

[percy]

With the share price falling over 34% in the past year it appears a lot of share holders are not prepared to wait.
We may see SCT trading at a more modest PE of 10 or 12.
Would appear Fisher Funds announcement that they had brought into SCT on 4/4/2013 shows bad timing on their part,unless they don't mind waiting for years!!!!!.
Interesting to see that while SCT is down over 34% in the past year our Heartland are up over 31%.!!!!!!
Big difference.$1,000 in SCT now $660.00 while $1,000 in HNZ is now $1,310.So you would be twice as well off by being in HNZ.
Disc.Hold no SCT,but enjoy holding HNZ.