I have had a quiet look at the FY2021 annual report. I have done a Buffett style evaluation and found the company very fully valued. So for a different perspective, 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)
Year |
Dividends as Declared |
Gross Dividends |
Gross Dividend Total |
FY2017 |
5.5c+3.5c |
7.64c + 4.86c |
4.86c |
FY2018 |
6.0c+4.0c |
8.33c + 5.56c |
13.89c |
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) + ?c (50% I) |
12.54c + ?c |
12.54c |
Total |
|
|
78.61c |
Averaged over 5 years, the dividend works out at 78.61/5 = 15.7c (gross dividend).
I have given some thought as to whether I should revise my sought for "gross yield" in this new environment of very low interest rates. 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 ma reducing my sought gross yield from 7.5% to 7%.
Based on my selected sought after 7.0% gross yield over an historic five year business cycle window, , 'fair value' for SKL is:
15.7 / (0.07) = $2.25
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: $2.25 x 1.2 = $2.70
Bottom of Business Cycle Valuation: $2.25 x 0.8 = $1.80
My target accumulation price is 10% below 'fair value', and that equates to $2.03.
SKL shares are trading at $6.06 as I write this (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 $2.03 and a 'growth premium' of $6.06 - $2.03 = $4.03 (which is quite a bit).
discl: hold SKL