SCT - Scott Tech

**sb9** · 31-05-2018, 03:41 PM

Business Acquisition - Transbotics

https://www.nzx.com/announcements/318776

Another acquisition to bolster growth.

**Snoopy** · 10-06-2018, 09:40 PM

Originally Posted by sb9

Business Acquisition - Transbotics

https://www.nzx.com/announcements/318776

Another acquisition to bolster growth.

Fairly light on detail with this announcement. We have thirty new members in the Scott's team as a result of buying Transbotics. Transbotics do Automotive Vehicle Guidance systems. The completion of the transaction announcement on 8th June says Transbotics has revenues of US$4.5m to US$11.0m over the past five years. Yet no mention of how much Scott's paid for the business? The fall out from having a new incompetent director on the board? I guess ultimately we will find out when the AR comes out at the end of the year?

SNOOPY

**sanctus671** · 09-08-2018, 02:48 PM

share price getting beaten up lately. possibly something negative on the horizon or is this just the result of a low volume stock?

**Snoopy** · 10-08-2018, 03:23 PM

Originally Posted by Snoopy

If we add to this the underlying profitability of Scott Technology today, I get an underlying profitability for the combined ‘Scott’ and ‘Alvey’ group of:

$8.959m -$0.502m + $8.470m = $16.927m

This projection assumes no profit growth or decline from either company.

I do not expect the Scott Technology result for FY2018 to be this high, because Alvey will have only been owned for part of FY2018. Nevertheless I believe this figure is representative of the ongoing profitability of the group and should be used to assess value ahead of whatever the actual FY2018 result turns out to be.

With 74.681m shares on issue, Scott/Alvey should have ‘eps’ figures of:

$16.927m / 74.681m = 22.7cps

With a share price of $3.50, this means Scott’s is currently trading on a projected PE of:

$3.50/ 0.227 = 15.4

Note that this projection does not include the expected future ramp up of Meat Industry Robotics work to be done in association with major shareholder JBS. Compared to some of the sky high valuations on the market at the moment and with much growth to come, something around $3.50 is looking reasonable

Originally Posted by sanctus671

Share price getting beaten up lately. possibly something negative on the horizon or is this just the result of a low volume stock?

I see nothing to change my valuation based on the data released to the market Sanctus. That means an underlying profit of around $17m based on 12 months ownership of Alvey) or $12.5m (based on the actual 6 months ownership of Alvey). My forecast is very sensitive to the Alvey acquisition. It is based on the profits from Alvey in its last year of independence carrying on into the future. Forecasting like this based on one year of Alvey earnings data is not a robust way of forecasting. If things deteriorate year on year, my forecast could be seriously wrong. But I am not changing it unless I can see a big downturn in building new appliance production lines in China and Europe.

At $3.30 my forecast 'underlying'(*) PE for SCT FY2018, based on where the market trades today is now:

$3.30/ 0.227 = 14.5

This seems very modest PE ratio considering I haven't factored in any growth from the soon to be expanded (doubled in size) Dunedin manufacturing site, to meet that very secure future pipeline of work in meat industry robotics for majority shareholder JBS.

SNOOPY

(*) The profit is underlying because Alvey has only been owned for half the financial year. To see if I am on track with this guess you need to look for an actual net profit of:

$16.927m -($8.470 / 2) / 74.681m = 17.0cps

$3.30/ 0.17 = 19.4

But that PE is not meaningful when you consider that Alvey profits will be on the books forever going forwards.

**sanctus671** · 11-08-2018, 01:44 AM

Thanks Snoopy. Appreciate your insights. I look forward to seeing what the full year results bring.

**sb9** · 29-08-2018, 04:46 PM

Hmmm...bit perplexed with the continued sell off over past few days, wonder why??

**Snoopy** · 29-08-2018, 07:27 PM

Originally Posted by sb9

Hmmm...bit perplexed with the continued sell off over past few days, wonder why??

It has been a while since it has traded under $3 hasn't it? (closing price today $2.95).

SCT is a thinly traded share and the share price has been dropping on tiny volume. If you want to sell a reasonable number of shares, you have to take 'market' price. I wouldn't read anything more into it than that.

It could be that all the international trade disruptions have made applicance manufacturers coy about installing new applaince line production facilities. That could hurt SCT over the next couple of years. But this is pure speculation on my part. Certainly when production line orders start coming in again, SCT will be well positioned because they have facilities in China, Europe and the Americas and Australia/NZ. So they will able to get around any trade barriers that exist by directing their work flow accordingly.

Meanwhile SCT are ramping up the meat industry automation robotics division by doubling the size of their Dunedin facility. The pipeline of work in the bag for JBS should see shareholders well rewarded in the medium term. I would guess the mining support business is on the up too!

SNOOPY