Our Liz quitting as Director and he sell off of her shares starts .... another 520,000 to go
Hope she not doing this as she thought SKL can't do much better over the next few years .... like peak performance or something
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Our Liz quitting as Director and he sell off of her shares starts .... another 520,000 to go
Hope she not doing this as she thought SKL can't do much better over the next few years .... like peak performance or something
Dividend received today. Eager to see how they are doing currently and how the NZD is benefiting their bottom line as lots of growth in US and worldwide
Skellerup starts well, predicts another record result
https://www.nzx.com/announcements/401169
Guidance $48-52m NPAT. Consensus is 51.9m.
Even if its $48.0m its more than last years $47.8m so is going to be a RECORD profit
After 38% profit growth in F21 and 19% in F22 0% to 8% is a bit anemic
We probably need to take this as a sign that the outlook for many companies in F23 is really that brilliant ....and doing about the same as F22 is going to be a good result
Skellerup designs and manufactures critical components for OEM manufactuers. All such critical components incorporate rubberized material or foam as constituent parts. These components are often required to meet stringent food, drinking water, hygiene and safety standards. Skellerup's competitive advantage is to leverage their expertise in engineering, chemistry and manufacturing to create rapid product prototypes to tight specifications, that can nevertheless be manufactured cost effectively.
For effective management Skellerup products are grouped under two broad divisions: 'Agri' and 'Industrial'. Further broken down the 'product catalogue' looks like this:
1/ Dairy (Agri): Food grade rubber-ware componentry for the milking shed, including 'udder liners', tubing & filters for hygiene, and feeding teats for the calves. Skellerup are the number 2 supplier of maintenance milking equipment worldwide AND
2/ Specialist Footwear (Agri): The traditional 'Red Band' gumboots to look after our farmer's feet. In fact the gumboots are so well thought of that they find wider application in the fire, forestry and electrical installation industries. Skellerup are the recognised leaders in this market in New Zealand
3/ Transport (Industrial): Vacuum systems, seals, injectors, couplings and gaskets, utilised throughout the transport industry in applications as wide as Mack trucks to Maserati cars.
4/ Houses (Industrial): Suppliers of seals to leading manufacturers of taps, showers, plumbing, and HVAC equipment - even some kitchen appliances. Skellerup also market roofing product directly.
5/ Medical Health Hygiene Equipment (Industrial): Face masks, filters and seals for respiratory equipment, orthotics and prosthetics.
6/ Utility Infrastructure (Industrial): Seals for potable water and wastewater applications. Covers and lids for water fire and electrical services on streets. valves and seals for industrial applications (food, liquid and material processing).
7/ Sport & Leisure (Industrial): Foam boat decking, Foam used in ski and snowboard boots.
Skellerup products are either leading market players in their own right, or are partners with well known branded market leaders via their components in the manufacturing chain.
Conclusion: 'Pass Test'
SNOOPY
Earnings Per Share = Normalised Net Profit over Year / No.of fully paid shares on issue at End of Year
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
2022: ($64.287-$0.882-$16.474+$0.274)m/195.276m = 24.1cps
Notes:
a/ Results for all years have had foreign exchange currency gains removed (FY2018 $1.123m, FY2020 $0.685m, FY2021 $1.281m, FY2022 $0.882m) and losses added back (FY2019 $0.170m). Foreign currency gains (or losses) are temporary differences based on exchange rate movements and not a measure of operational business performance.
b/ FY2020/FY2021/FY2022 results adds back an after tax $0.400m/$0.319m/$0.274m 'before IFRS16' adjustment, to allow a like-with-like comparison of NPAT with previous years.
c/ FY2020 result adjusted for a $0.255m 'vacated lease' payment. ( AR2020 )
Conclusion: 'Pass test'.
SNOOPY
Return on Equity = Normalised Net Profit After Tax / Shareholder Funds at End of Financial Year
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%
2022: $47.205m/$211.208m= 22.4%
Conclusion: 'Pass Test'
SNOOPY
Net Profit Margin = Normalised Net Profit / Revenue
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%
2022: $47.205m/$316.829m= 14.9%
I see a good margin lift from FY2018 to FY2022 with just a small dip on the year Covid-19 hit.
Conclusion: 'Pass test'
SNOOPY
I have had a quiet look at the FY2022 annual report. What does the announcement of the HY2022 dividend payment do for valuing the company based on capitalised payments?
I have updated my valuation using the latest five years of 'rolling data'. FY2019 was been the first year that dividends have not been fully imputed, and it looks like given the multinational production strategy, this will be the case forever into the future. Granted, the dividends have been increased, which means that dividend hungry shareholders are not worse off in dollars paid out terms. As Liz Coutts highlights in the Chairman's address:
"While much of our product development and design is done in New Zealand, more than three quarters of our products are manufactured overseas"
The calculations to work out the equivalent gross figure for FY2019's, FY2020s, FY2021s and FY2022s unimputed dividends, those actually paid in the FY2019, FY2020, FY2021 and FY2022 financial years, are as follows:
FY2019 P1/ 7.0c (55% imputed) = 3.85c (FI) + 3.15c (NI) = 3.85c/0.72 +3.15c = 5.35c +3.15c = 8.50c (gross dividend)
FY2019 P2/ 5.5c (50% imputed) = 2.75c (FI) + 2.75c (NI) = 2.75c/0.72 +2.75c = 3.82c +2.75c = 6.57c (gross dividend)
FY2020 P1/ 7.5c (50% imputed) = 3.75c (FI) + 3.75c (NI) = 3.75c/0.72 +3.75c = 5.21c +3.75c = 8.96c (gross dividend)
FY2020 P2/ 5.5c (50% imputed) = 2.75c (FI) + 2.75c (NI) = 2.75c/0.72 +2.75c = 3.82c +2.75c = 6.57c (gross dividend)
FY2021 P1/ 7.5c (50% imputed) = 3.75c (FI) + 3.75c (NI) = 3.75c/0.72 +3.75c = 5.21c +3.75c = 8.96c (gross dividend)
FY2021 P2/ 6.5c (50% imputed) = 3.25c (FI) + 3.25c (NI) = 3.25c/0.72 +3.25c = 4.51c +3.25c = 7.76c (gross dividend)
FY2022 P1/ 10.5c (50% imputed) = 5.25c (FI) + 5.25c (NI) = 5.25c/0.72 +5.25c = 7.29c +5.25c = 12.54c (gross dividend)
FY2022 P2/ 7.5c (50% imputed) = 3.75c (FI) + 3.75c (NI) = 3.75c/0.72 +3.75c = 5.21c +3.75c = 8.96c (gross dividend)
FY2023 P1/ 13.0c (50% imputed) = 6.5c (FI) + 6.5c (NI) = 6.5c/0.72 +6.5c = 9.03c + 6.5c = 15.53c (gross dividend)
Year Dividends as Declared Gross Dividends Gross Dividend Total FY2018 6.0c+4.0c 8.33c + 5.56c 5.56c FY2019 7.0c (55% I) +5.5c (50% I) 8.50c +6.57c 15.07c FY2020 7.5c (50% I) + 5.5c (50% I) 8.96c + 6.57c 15.53c FY2021 7.5c (50% I) + 6.5c (50% I) 8.96c + 7.76c 16.72c FY2022 10.5c (50% I) + 7.5c (50% I) 12.54c + 8.96c 21.50c FY2023 13.0c (50% I) + ?c (50% I) 15.53c + ?c 15.53c Total 89.91c
Averaged over 5 years, the dividend works out at 89.91/5 = 18.0c (gross dividend).
Given the resilience of Skellerup over the first year of the pandemic, plus the non discretionary nature of most of the product they supply, I consider a gross of 7% an acceptable return.
Based on my selected sought after 7.0% gross yield over an historic five year business cycle window, , 'fair value' for a 'no growth' SKL is:
18.0 / (0.07) = $2.57
Now using my plus and minus 20% range to get a feel how the SKL share price might behave at the top and bottom of its business cycle.
Top of Business Cycle Valuation: $2.57 x 1.2 = $3.08
Bottom of Business Cycle Valuation: $2.57 x 0.8 = $2.06
SKL shares finished trading at $5.70 last week (well above the upper end of my capitalised dividend valuation range). An alternative way of looking at this result is to say that SKL has a 'capitalised dividend value' of $2.57 and a 'growth premium' of $5.70 - $2.57 = $3.13. $3.13 is a lot, but down from the overheated $3.71 from 30-09-2021.
SNOOPY
discl: hold SKL
Very impressive result on all four Buffett tests over FY2022. The idea that Skellerup is a great company gains fewer and fewer dissenters as the years roll by. However, this is reflected in the market PE for Skellerup on adjusted earnings soaring to over 29, by 30th September 2021, even if one year later that PE figure has dropped to a more conservative but still high 22. It is very important potential investors bear in mind the value equation:
'Good Company' + 'Paying too much for Shares' = 'A Poor Investment'
.... and so it proved over the year. Despite earnings per share jumping by 17%, the share price declined by 10% over the September year as FY2022s bumper result was digested. This shows the folly of buying a good company with no regard to the share price, in the short term at least. In the case of SKL this was well signalled by me as well.
An alternative way to price growth is to create a 'no growth' valuation. The difference between the share price and the 'no growth' valuation is therefore the market priced 'growth premium'. The 30-09-2022 Capitalised Dividend valuation for SKL (post 1189) is $2.57.
Share Price equals Capitalised Dividend Value plus Implied Growth Premium 30-09-2021 $5.96 $2.25 $3.71 (+165%) 30.09-2022 $5.38 $2.57 $2.81 (+109%)
The share price is lower than last year, and the market growth premium has decreased (which is what we might expect as a consequence).
But what is the investment case for new investors from here? This is the next task for me to investigate.
SNOOPY