SCT - Scott Tech

[Snoopy]

I am still a little nervous about the outlook for FY2013. With the SCT share price at its highest point for several years, I took a few more profits yesterday at $2.25. Taking a layer of profit off the top is a strategy I call "peeling the onion" - taking off just the top layer doesn't make that much difference to the weight of your overall holding. Even though it may produce a few tears! I have a gut feeling the SCT share price has run up a little too hard too quickly. Plus the rather frothy press release on meat line automation struck me as a mostly head and little body brew up. My average acquisition price is now down to 90c as a result of my 'peel'.

Referring to my post 160, the actual profit for FY2012 of $5.5m was a little shy of my prediction of $7m. Nevertheless Mr Market didn't mind and the share price has been bid up to $2.60 today, a post dividend high.

There are now 40,983,443 shares on issue. So historical earnings per share is now 13.4c. At $2.60 this represents a PE of 19.4. This looks close to full value to me based on past results. So over the last week I have taken the opportunity to 'peel another layer off the onion'. Despite what I sold being barely an economical parcel to sell it has taken a week to get my order through. There are real pitfalls in holding a share where the liquidity is as low as this one! My back of the envelope calculation now shows that I have an average entry price of just 70c.

SCT has been a sensationally good investment for me, and I expect it will continue to be so into the future. In a years time there is every chance that $2.60 will not look so expensive. Yet I will sleep a little better at night now knowing that my portfolio has been brought more into balance.

SNOOPY

[Taijon]

[
SCT has been a sensationally good investment for me, and I expect it will continue to be so into the future. In a years time there is every chance that $2.60 will not look so expensive. Yet I will sleep a little better at night now knowing that my portfolio has been brought more into balance.

SNOOPY[/QUOTE]

Snoopy, I just want to thank you for all the time and analysis you put into this stock (and others). I really enjoy your posts. I have held SCT for goodness knows how many years. During that time there have been highs and lows with 2009 being a particularly bad year - thats when I sold out some of my holding at quite a loss. However 3 years on and the share price has more than doubled from the price I sold for. I too think the price is on the high side now, and like you I have been peeling the onion, but at prices a bit lower than you pre-dividend.

I've still got a reasonable number of SCT shares and plan to buy back in should the price weaken but as you have pointed out many times, liquidity is a problem with this share. The centennial year will be good and will probably mean it will be even more difficult to buy back in unless you get lucky on a day there is a major total market fall and a loyal SCT holder gets the jitters. 260 now could well be cheap as you say.

Have a happy christmas and all the best for your investing in 2013.

[Snoopy]

I've still got a reasonable number of SCT shares and plan to buy back in should the price weaken but as you have pointed out many times, liquidity is a problem with this share. The centennial year will be good and will probably mean it will be even more difficult to buy back in unless you get lucky on a day there is a major total market fall and a loyal SCT holder gets the jitters. 260 now could well be cheap as you say.

It didn't take long for SCT to start 'looking cheap' at $2.60. Buyers now in the market at $2.81 and no sellers until $3.

The upward momentum may have been continued by the following announcement made to the market on 28 January 2013

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A World First Gift for NZ Researchers

New Zealand company HTS-110 is gifting world-leading technology to support NZ researchers and scientists for a year.

Wellington-based HTS-110 manufactures cryogen-free superconducting magnets for applications in high-tech manufacturing, materials research and particle physics. HTS-110 is the only company in the world dedicated to the development and commercialisation of high temperature superconducting magnet systems. These systems are already in place in some of the world’s highest- tech facilities in Asia, Europe and the Americas.

This latest-generation HTS-110 magnet is for use in NMR, a technique that provides highly specific chemical information from a variety of materials and can be used to greatly increase the understanding of chemical reactions in both industry and research.

HTS-110 wants to give Kiwi researchers the opportunity to be among the first in the world to get access to this technology and to help share and promote the advances that Kiwi researchers will make with this new magnet.

CTO and Co-CEO of HTS-110 Dr Donald Pooke says “Our HTS-NMR product has been in development for over 5 years and we now have installed systems at key global reference sites delivering the same benefits as all our other HTS devices, including compact size, low installation cost and extremely flexible operation compared to existing technology. We are very excited to be able to offer this same leading technology to the New Zealand research community through this trial scheme”.

Managing Director of Scott Technology, HTS-110’s major shareholder, Chris Hopkins says “We are very proud of what we have achieved and we wanted to make this world leading technology that has been developed in New Zealand available to leading organisations in this country. Recently, the unique nature of the technology has been highlighted through uptake and trials in the Pharmaceutical, medical and other associated industries in the USA, Japan and Italy”.

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To which I might ask the question, if the technology is really world leading then why are SCT simply giving it away? I can't see that increasing the wealth of SCT shareholders! Is this a question of the culture of the old government controlled Industrial Research Limited still being fully engrained at HTS-110? Or am I thinking too short term?

SNOOPY

[Snoopy]

The meeting clarified for me how the Scott Technology relationship with XRF Scientific in Australia works. Scotts (Rocklabs) were supplying the sample analysis equipment. That spews out heaps of data that must be interpreted. Who better to do that than the university boffins at XRF scientific? So with Rocklabs and XRF Scientific working together, what SCT have is a turnkey package solution for the mining industry. Clever!

Very good headline number for SCT's Australian partner XRF Scientific in their half year result. Yet on closer inspection almost all of the increase could be put down to the ongoing restructure of the Capital Equipment division. That is unrelated to the SCT joint venture 'XRock Automation' of which the following was said:

"XRock Automation generated a modest profit for its first contribution to XRF’s results, after paying for all start-up costs. Significant automation work is expected to be obtained during the next half, mainly in the area of sample preparation (automated crushing and pulverising) which is manufactured by Rocklabs Ltd. The joint venture has allowed XRF to strengthen its relationship with Scott Technology Ltd and its subsidiary Rocklabs Ltd, leaders in their retrospective fields."

Nevertheless I like the idea of creating a new joint venture and paying off all start up costs within six months. Even if that leaves me uninformed about what sort of numbers of Rocklab salers we SCT sharehodlers will be getting in the future.

SNOOPY

[ace5715]

Scott technologies took a bit of beating down 13c today and off a high of $2.70 a few weeks back. A bit of profit taking after a pretty good run or more to it? I haven't seen any market news to indicate that there are bad things on the horizon. If anything I wouldn't thought the future looks good.

[Snoopy]

Scott technologies took a bit of beating down 13c today and off a high of $2.70 a few weeks back. A bit of profit taking after a pretty good run or more to it? I haven't seen any market news to indicate that there are bad things on the horizon. If anything I wouldn't thought the future looks good.

I think that SCT looks to be still on track Ace.

I was surprised to see a big jump in trade debtors, up at $3.881m compared to only $814m in the pcp. But Scotts business is lumpy and the underlying balance sheet is strong, so I don't think we shareholders should be worried yet.

I further note a jump in the maximum penalty clause exposure from $0.580m to $2.827m. But this is not entirely unexpected given SCT has just completed a big appliance system installation.

Trying hard to look for negatives here, I note the 'standard equipment' segmental profit is down from $NZ3.574m to $NZ2.644m. That could indicate that growth at Rocklabs has stalled. Then again the superconductor products and milking equipment systems, both part of this category are due to bounce back.

Overall I can't see any real reason that the long term growth plan is not on track. But with the underlying PE being 19 before this result release, the market for SCT may indeed have got a little ahead of itself.

SNOOPY

[ace5715]

Cheers for the insight Snoopy, Looking forward to watching how Scott's do over the next year or so. I'm expecting the appliance business to pick up, I've heard that Scott's are close to or have signed up a number of projects with GE in the USA and Rheem in Australia. Also with PML fully focused on Haier work a lot of Scott's competition for other work has been reduced. Whilst I believe they could go from competitor to sub contractor to PML for Haier work. Interesting times in the south.

[Snoopy]

Interesting to see Fisher Funds now holding close to 8% of SCT, although it looks like this is a result of acquiring Tower, not buying the shares themselves. I see Fishers as rather flighty holders,so we could be in for a bit of share price volatility in coming months.

SNOOPY

[Snoopy]

Interesting to see Fisher Funds now holding close to 8% of SCT, although it looks like this is a result of acquiring Tower, not buying the shares themselves.

Peeled another slice off the onion the other day at $2.70. Still holding a reasonable bag of SCT shares though, and my average acquisition price has reduced to just 44c. I expect that will be the end of my onion peeling now, as I don't want to shed any more tears over my SCT holding. That means I am selling down with some regret.

So why did I sell down again? Some cynics might say it was it he "Fisher Funds effect" at work. For those who came in late, this is where any small cap Fisher get into, with the associated:

"buy high to force up the share price to make their end of period NTA look good."

you get out of. And when Fishers sell out (invariably at the bottom) this is your best signal to buy. However, this Fisher holding was actually accumulated by Tower, bought on the assumption IIRC that:

"some well performed smallcaps can easily double in value."

Perhaps there is some truth in that, but it is rather shallow analysis in my book. Want to wade in deeper? Then let the Snoop clear some of that muddy water for you...

SNOOPY

[Snoopy]

This holding was actually accumulated by Tower, bought on the assumption IIRC that:

"some well performed smallcaps can easily double in value."

Perhaps there is some truth in that, but it is rather shallow analysis in my book. Want to wade in deeper? Then let the Snoop clear some of that muddy water for you...

At $2.70 SCT is on an historic normalized PE approaching 20. That means quite a lot of growth is already built into the share price.

On the positive side, HTS-110 Limited - the superconductivity application side of the business - is really only just getting started as is Milktech, the automated milking robotics for existing cowsheds. Historically though, these new business arms are much slower to reflect financial success than technical success. Just look at how long the much vaunted meat industry, which only earned 56k across three continents in HY2013, is taking to deliver after nearly a decade's incubation.

On the negative side, I saw some speed bumps in the half year result which means we shareholders might be in for some speed wobbles.

Ostensibly the HY2013 ($2.96m profit) result was an improvement on HY2012 ($2.82m profit). But look in the Statement of Comprehensive income in the half year annual report. and you will see that 'other income' went from $0.626m to $1.130m. Now go the the segment information (note 6) and look at the government grants income going from $0.600k to $1.097m.

The glass half full interpretation of this is that the innovation at SCT continues to impress the government so much that they have increased their cash contribution to SCT over the period by $497k. This is good. But if we subtract the after tax effect of this bumped up grant from the first half result (0.72*$497k= $357k) you can see that this is greater than reported increased profit for the period. ($2.96m-$2.82m= $140k). That means at the operational level after tax profit reduced by $217k or 8%.

OK I have to give some credit to CEO Hopkins for managing to convince the government that it was worth putting that extra R&D money into our company. But I would be happier to see operational profits increase because of this extra R&D money, not go down!

SNOOPY