Adjusting results for IFRS16: FY2020
Quote:
Originally Posted by
Snoopy
Earnings Per Share = Normalised Net Profit over Year / No.of fully paid shares on issue at End of Year
2020: ($39.831-$0.685-$10.767+$0.400 +0.72x0.255)m/194.753m = 14.8cps
Notes:
d/ FY2020 result adds back an after tax $0.400m 'before IFRS16' adjustment to allow a like with like comparison of NPAT with previous years.
IFRS16 on leases has thrown a spanner in the works of 'comparative metrics'. Over the lifetime of a lease, the IFRS16 standard doesn't change the numbers. However the transformation of what used to be termed 'rent' into a 'depreciation of a right to occupy asset' and an associated 'interest on capitalised lease' charge, change the way the former 'rent' expense is dealt with on a year to year basis. IFRS16 is a relatively recent development. So my preference is to adjust current results back to what they would have been in a pre-IFRS16 environment, to provide better comparative results with previous years. SKL have reported their results in a way that makes such an exercise relatively straightforward. Here is the detailed calculation on how the $0.400m IFRS16 adjustment, in the FY2020 adjusted quoted above result, was made.
Post IFRS16
$5.227m |
Lease amortisation & impairment |
(Ref AR2020 Note 9 'Property, Plant & Equipment') |
plus $0.938m |
Financing Costs wrt Lease Payments |
(Ref AR2020 Note 16 'Finance Costs') |
equals $6.165m |
|
(Total) |
Pre IFRS16
as listed $5.609m |
Lease Payments |
(Ref AR2020 Note 14 'Lease Liabilities') |
=> FY2020 Expense Difference 'New - Old' = $6.165m - $5.609m = $0.556m
So under the IFRS16 reporting convention, 'rent' is higher which means 'profits' as reported will be lower. The adjustment to profits -after tax (assuming a tax rate of 28%) - back to what they would have been under the old reporting regime is therefore to add to reported FY2020 profit an amount of:
0.72 x $0.556m = $0.400m
SNOOPY
BT2/: Increasing EARNINGS PER SHARE (One setback allowed) FY2021 View
Quote:
Originally Posted by
Snoopy
Earnings Per Share = Normalised Net Profit over Year / No.of fully paid shares on issue at End of Year
2016: ($29.099+$0.800+$0.145m+$1.275-[$8.429+0.28*$0.145])m /192.806m = 11.9cps
2017: ($31.435-$2.507+$0.025m-[$9.300+0.28*$0.025])m /192.806m = 10.2cps
2018: ($37.918-$1.123-$10.641)m /192.806m = 13.6cps
2019: ($40.036+$0.170-$10.973)m/194.753m = 15.0cps
2020: ($39.831-$0.685-$10.767+$0.400+0.72x0.255)m/194.753m = 14.8cps
Notes:
a/ Results for all years have had foreign exchange currency gains removed (FY2017 $2.507m, FY2018 $1.123m, FY2020 $0.685m) and losses added back (FY2016 $1.275m, FY2019 $0.170m). Foreign currency gains (or losses) are not a measure of operational business performance.
b/ Result for FY2016 adds back $800,000 in restructuring costs (AR2016 p7).
c/ Result for FY2017/FY2016 adjusts for removing the one off $25,000/$145,000 earthquake relocation expenses (AR2017 p39) respectively, by adding back the effect of a hypothetical situation where these losses were not incurred. The $9.300/$8.429m tax figures used for FY2017/FY2016 respectively have already incorporated the tax relief on these expenses which did occur. But we are modelling the situation where they did not occur. So we have to:
i/ Add in the extra tax payable when certain expenses did not occur (because profits would be higher than anticipated) .
ii/ Add back the expenses themselves that were not incurred, because expenses not paid amount to profit before tax.
d/ FY2020 result adds back an after tax $0.400m 'before IFRS16' adjustment to allow a like with like comparison of NPAT with previous years.
e/ FY2020 result adjusted for a $0.255m 'vacated lease' payment. ( AR2020 )
Conclusion: I believe the 0.2cps drop in profit shown from FY2019 to FY2020 is within the margin of error of the inputs used to get the two figures. We know that until Covid-19 (a black swan event) the previous year's result would have been beaten. I am therefore declaring this result a 'pass test'.
Earnings Per Share = Normalised Net Profit over Year / No.of fully paid shares on issue at End of Year
2017: ($31.435-$2.507+$0.025m-[$9.300+0.28*$0.025])m /192.806m = 10.2cps
2018: ($37.918-$1.123-$10.641)m /192.806m = 13.6cps
2019: ($40.036+$0.170-$10.973)m/194.753m = 15.0cps
2020: ($39.831-$0.685-$10.767+$0.400+0.72x0.255)m/194.753m = 14.8cps
2021: ($54.245-$1.281-$14.070+$0.319)m/195.276m = 20.6cps
Notes:
a/ Results for all years have had foreign exchange currency gains removed (FY2017 $2.507m, FY2018 $1.123m, FY2020 $0.685m, FY2021 $1.281m) and losses added back (FY2019 $0.170m). Foreign currency gains (or losses) are not a measure of operational business performance.
b/ Result for FY2017 adjusts for removing the one off $25,000 earthquake relocation expenses (AR2017 p39) respectively, by adding back the effect of a hypothetical situation where these losses were not incurred. The $9.300m tax figure used for FY2017 respectively has already incorporated the tax relief on these expenses which did occur. But we are modelling the situation where they did not occur. So we have to:
i/ Add in the extra tax payable when certain expenses did not occur (because profits would be higher than anticipated) .
ii/ Add back the expenses themselves that were not incurred, because expenses not paid amount to profit before tax.
c/ FY2020/FY2021 results adds back an after tax $0.400m/$0.319m 'before IFRS16' adjustment, to allow a like-with-like comparison of NPAT with previous years.
d/ FY2020 result adjusted for a $0.255m 'vacated lease' payment. ( AR2020 )
Conclusion: 'Pass test'.
SNOOPY
BT3/: RETURN ON EQUITY (>15% for five years, one setback allowed) FY2021 View
Quote:
Originally Posted by
Snoopy
Return on Equity = Net Profit After Tax / Shareholder Funds at End of Financial Year
2016: $22.849m /$155.855m= 14.7%
2017: $19.635m /$159.247m= 12.3%
2018: $26.154m /$172.286m= 15.2%
2019: $29.233m /$178.392m= 16.4%
2020: $28.963m /$184.563m= 15.7%
14.7% rounds up to 15% in whole number terms.
Conclusion: Pass Test
Return on Equity = Normalised Net Profit After Tax / Shareholder Funds at End of Financial Year
2017: $19.635m /$159.247m= 12.3%
2018: $26.154m /$172.286m= 15.2%
2019: $29.233m /$178.392m= 16.4%
2020: $28.963m /$184.563m= 15.7%
2021: $40.243m/$196.140m= 20.5%
Conclusion: 'Pass Test'
SNOOPY
BT4/: ABILITY TO RAISE MARGINS ABOVE THE RATE OF INFLATION: FY2021 View
Quote:
Originally Posted by
Snoopy
Net Profit Margin = Net Profit / Revenue
2016: $22.849m /$211.415m= 10.8%
2017: $19.635m /$210.232m= 9.3%
2018: $26.154m/$240.408m= 10.9%
2019: $29.233m/$245.792m= 11.9%
2020: $28.969m/$251.389m= 11.6%
I see a good margin lift from FY2016 to FY2018, with most of those gains being retained under the Covid-19 influenced period.
Conclusion: Pass test
Net Profit Margin = Normalised Net Profit / Revenue
2017: $19.635m /$210.232m= 9.3%
2018: $26.154m/$240.408m= 10.9%
2019: $29.233m/$245.792m= 11.9%
2020: $28.969m/$251.389m= 11.4%
2021: $40.243m/$279.613m= 14.4%
I see a good margin lift from FY2017 to FY2021 with just a small dip on the year Covid-19 hit.
Conclusion: Pass test
SNOOPY
Buffett Test: Overall Evaluation Conclusion FY2021 Perspective
Quote:
Originally Posted by
Snoopy
Two years on and how things change. All four of the Buffett investment criteria are satisfied. That is not an invitation to invest in Skellerup of course. Passing the four Buffett criteria only gets a place at the Buffett evaluation start line. Two very important tests remain. For a start we must determine if Skellerup is too heavily indebted. Overleverage can push up ROE and that is not a good thing as the company could become unstable in a market downturn. Finally we must determine if the recent rise in the share price already reflects the value of future business improvements. No matter how good a company is at the operational level, it is still possible to pay too much for the shares.
'Good Company' + 'Paying too much for Shares' = 'A Poor Investment'
One thing that is certain is that the historical PE ratio has continued to expand. The share price is flirting with $3. If it gets there that will imply an historical PE ratio of 20, which in historical terms is quite a lot for a 'boring industrial'. Still Skellerup's Covid-19 resilience and their ability to keep paying dividends is impressive.
I skipped the BT1/ test because Skellerup is just as powerful in its chosen target markets as it was last year, but incrementally better. So the 'Pass Test' result for 'Buffett Test 1' is carried over from FY2020.
https://www.sharetrader.co.nz/showth...l=1#post843610
Very impressive result on all four Buffett tests over FY2021. As per my equivalent FY2020 round up, the fact that Skellerup is a great company is no secret. But almost everyone involved in the markets knows this. This is reflected in the market PE for Skellerup on adjusted earnings soaring to over 29, by 30th September 2021. So it is very important potential investors bear in mind the value equation
'Good Company' + 'Paying too much for Shares' = 'A Poor Investment'
Can the historical PE ratio has continue to expand even further? The share price has doubled over a year. The dividend is up by around 30% over the same period. Investors can see from this that most of the share price gain over the year has been due to 'multiple expansion'. I would be very surprised to see the share price double again in the coming year.
But what is the investment case for new investors from here? This is the next task for me to investigate.
SNOOPY