Yeah fair point, however one would expect a small spike in sp after such an announcement.
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5.8% net at $1.70 seems ok to me, upside ahead I reckon.
Nice lift in sp in an otherwise bearish market today...
How does everyone see this company valued? How much do you guys think it will grow in next 5 years. How do you think it compares with similar companies eg PGW?
Based on 43% apple growth over 5 years and capacity and efficiency growth in storage and logistics I guestimate 5% p.a growth over the next 5 years. For my model this puts value at around current market price whereas PGW is slightly under valued by the market. However I think if you take into account the very strong balance sheet of SCL (especially when compared to PGW) they have room to suprise on the upside.
Craigs see fair value at $1.90 and First N.Z. are at $2.10...both would have analysed this a lot more closely than I, (I have only a modest stake). Consensus broker fair value on PGW is 56 cps.
FWIW I hold more in terms of market value in PGW and added more recently at 48 cps. Both good value IMHO but I tend to favour PGW because of its ripper fully imputed dividend yield and its more diversified exposure to the agri sector.
James108.
The Scales ASM is being held at 4.30pm on Monday the 8th of June.Not far away.
I expect we will be updated with latest trading, and most probably will receive a profit guidance for the coming year.
Brokers will then adjust their research projections.
So, it may be prudent to wait for the updates before deciding to invest in PGW or SCL.
Like Roger I have more invested in PGW,however I may, depending on the updates ,bring my SCL holding up to the same value as my PGW.
I really like this story, food producer, good yield $2 next stop.
ST people will be spoiled for analysis after the ASM with Percy, Noodles and myself attending, flying AIR N.Z. of course :)
Thanks Percy, for the reassurance few mths back. One of the best ones at present.....safe travel. I am waiting for that $2.50 stop.
Insider buying?
Good endorsement by top management, Kevin Cahill - CEO of Polarcold Stores buying 50,000 shares @1.73 (rounded)...
Anyone interested in seeing how nz apples are being pricing/ displayed in China ? Can provide pics or video inside Walmart
Fairly decent turnover today on the back of ASM I guess....
Seemed to be a pretty slick presentation, all positive and well diversified. That word was used a lot, 8 times on counting.
Suppose Andy has new set of disciples after that effort. I might listen
Love that pet food operation
suppose as SCALES SHAREHOLDERS meeting and mainly about APPLES this is a fair representation of what was said (I left SLIDE out but it was a SLIDE show)
The ASM was well attended.
The Chairman,Jon Mayson,and the CEO Andy Borland, spoke and presented well.
The company is on track to meet and better their prospectus forecast.
The company is focused on promoting their Mr.Apple brand.
They are excited about the prospects for the new Polarcold coolstore in Auckland.
I said awhile ago that Scales' annual report was the best I had read in a long time,and the meeting confirmed, that SCL is a very well run business, trading on modest ratios with excellent steady growth prospects.
Well summed up mate. Its better diversified than many people might imagine. For example producing enough quality dog food to feed a million dogs for a whole year per annum got my attention as a dog lover.
Steady growth this one. New Coolstore in Auckland will make a good difference to their logistical capabilities. Good apple prices, growing brand awareness, good premium apple varities, currency tailwinds, circa 8.5% gross divvy yield all combine to mean you're being paid handsomely well to enjoy steady growth. Undemanding PE of circa 11 makes this a "tasty", long term investment.
Many thanks indeed Percy for your hospitality yesterday and for showing Noodles and I around Christchurch.
Great news!! Good to hear from both of you Roger and Percy. I topped yesterday...great company.
Likewise, would like to share my appreciation for their insight to Roger, Percy and Noodles, thanks guys.
One of noodles favourite phrases is 'Deworsification'
Suppose deworsification is not applicable to this 'better diversified than we thought' (Roger) company in Scales
Sorry mate - couldn't resist
Love that pet food business ....something special ....might try and score a site tour.
I bought more today. Stock trades cum a 7 cent fully imputed dividend, ex date is very early in July.
Thanks guys, indeed a great company, well done Roger!
A small extract from KPMG Agribuisness report
PIPFRUIT[
The industry has had a challengingdecade, with many growers strugglingto consistently return profits. Exportershave struggled to differentiate theirproducts when presenting them toconsumers; many of the companies areselling the same varieties at the sametime, which has resulted in price oftenbeing the only point of differentiationfor the customer. However, during
our conversations it was noted thatconfidence is building on the back ofimproved returns, export consolidationand new innovation across the sector.
While the industry will never return
to a single-desk seller model, it wassuggested that the days of having morethan 80 exporters competing for thesame customer dollars are now behindus. The expectation is that the industrywill shift towards having five or six majorexporters with some niche players (oftenhaving their own proprietary varieties
to present to customers) enabling thesales conversation to focus on a rangeof factors beyond price. These areencouraging signs that greater value
will be created.
The sector has also recognised that itscore customer base has changed. Lessproduct is being exported to Europe andNorth America, to capture the growthopportunities in emerging Asian markets.Companies in the sector, together with
Pipfruit NZ, have invested in gaining
a deeper understanding of their newconsumers and securing the necessarymarket access.
These learnings are informing initiativesthroughout the supply chain; all designedto lift the value participants are able tocapture. One of the most obvious is thelong-term investment being made in
new apple varieties to meet the tasteand size profile preferred in Asia (inparticular large sweet apples); however,the timeframes to full commercial supplycan be up eight years. It is encouragingto see the sector focused on growing theright quality product to meet consumerneed, and supplying it through aneffective, integrated supply chain.
lol. You can blame Peter Lynch for that phrase.
There is a great picture on pg.9 of their investment statement that describes how each of the divisions interact.
http://scalescorporation.co.nz/wp-co...t-4th-July.pdf
The diversified approach reduces earnings volatility.
I asked the question at the AGM if there was going to be additional acquisitions. The response was that a couple of small ones were on the cards. Clearly, if they can increase the coolstore utilisation rate, it would provide great synergies.
Scales is now my largest holding. I simply don't see much in the way of short term downside.
-With 33% of apples sold, it looks as if prices and volumes are holding up on last year.
-The coolstore business has bounced back (as expected) after a poor 2014
-The currency fall against many of the trading partners (but most importantly the USD) will really drive profitability going forward.
Therefore I expect FY15 PFI forecast to be easily beaten. I estimate they are currently trading on a FY15 pe=10. I also expect brokers are being very conservative with their forecasts. Thus I see broker upgrades by the end of the year. Currently, the average broker target is $2.
They will pay 12c of dividends and 4.7c of imputation credits = 16.7c in the next 6 months. (dividend strippers take note)
Going into FY16, there are many growth initiatives in plan to keep the momentum going. The major initiatives are:
-increased premium apple supply
-$30m Auckland coostore
If they do reach the 12 months broker target of $2, there would be 27c (share price appreciation) + 16.7c (dividend) = 43.7c return on the last close of $1.73. That is a potential 25% upside. But given I think broker estimates are conservative, that may just be a starting point.
Dunno if they will reach their broker targets but I think they are good value and I got in last week. Only wish I got in when they were even better value!
Love that pet food freezing division. Great innovation for a nz company.
You guys have convinced me this thing is a winner, a sure fire winner. You have talked me out of any doubts I had. But wish noodles would come up with his own earnings forecast instead of going about analysts forecasts, I hate analysts forecasts.
Done the old linear regression channel chart and it's looking all honky dory ---- just under1% a week gain since it was 140 in December.
So what's left of the HNZ cash goes into Scales next week
Hope that CEO who you rave about us good as you make out or he be getting plenty o mouth from me
Don't any of you dare say welcome aboard or good luck ---- luck not needed here
^ that post makes me nervous
Why? --- highly concentrated portfolio --- expectation of each in it is 30% to 40% return within a year --- will be happy if price stays within the up trending price channel.
My response is you should be happy and have greater confidence of success now I gave joined the team and given Scales this endorsement.
The pe quote is based on my estimate.
Last year the horticulture Division sold $158m worth of apples. 97% went overseas. That result was achieved with a USD at 82c. Now consider how much extra revenue they will achieve at a USD rate close to 70c. Volumes and USD pricing being equal, we should see most of that extra revenue going straight to the bottom line.
Is it not as simple as that as there are multiple currencies, forward cover, and shipping rates to consider, but it illustrates the leverage to falling NZD. #tailwind
Ah well... welcome on board winner69. Happy or fruitful journey sir.
Hmm .....maybe just words, if the Board and Leadership Team anything to go byQuote:
Diversity
Scales values individuals’ differences and seeks to ensure that the Board and workforce both comprise members reflecting diversity.
Scales recruits, promotes and compensates on the basis of merit, regardless of gender, ethnicity, religion, age,nationality, sexual orientation, union membership or political opinion. Scales requires that people in the workplace are treated with respect in accordance with the company’s philosophies of equal employment opportunities, and anti- harassment and discrimination policies.
This is not the sort of business you will be happy to invest in W69.Best to sell,move on and save us all from your moral raves,should Scales not meet your "highly concentrated portfolio's 30% to 40% expectations".
1]All white male board.
2]No diversification.
3]Annual report ,and all communications written and spoken in English only.
4]CEO on over $150,000 pa pay.
5]Reliant on cheap imported labour to pick the crop.
6]No over the top financial projections.
7]The company is looking for 15%ROE,far in excess of your acceptable under 10%.
Please stay away,and let others enjoy investing in this company.....,
3) weren't many pictures either!!!
6) at least their forecasts (still tied to IPO numbers) seem a honest sort of guidance.
7) ROIC not a problem --- deserve to make decent money as the reward for being productive and making actual stuff and adding value to stuff and exporting stuff. Good for the economic well being of this great country. I have no problem with that
Winner is always welcome.
Noodles I started going through the thread but all the death crosses and moving averages gave me a headache.
Scales is recently floated but it is not as rubbish as most IPOs in a hot market as it came out of Hubbard's empire, more crony capitalism no-one offered it to me on the cheap.
In Peter Lynch's terms would you consider SCL a fast grower or a stalwart and if it's a fast grower why and how?
Do you know about the tasty apple brands, noticed them in the supermarket? Do you work in the industry and know that there are new export markets opening up?
On the face of it a cropping business is a little more unstable than others subject as it is to the vaguaries of weather, what has happened in the past? How often does the company get bad seasons or random political factors like the American empire being aggressive against the Russians who shouldn't be in Ukraine?
It's not enough for me to buy on the basis of an analyst estimate as by definition the future of shareprices represents what they don't know, presumably they have priced all the things you mention pretty well.
You could say that Bill Gates is a value investor but only because he had a special insight into microsoft. This sort of insight is how Peter Lynch made is career and recommended that small investors may have an edge.
I don't see your edge.
Not that I am saying it is a bad company if the analysts forecasts turn out as planned you will do OK for sure. Without the history or knowing the industry I have no way of evaluating if this is the case.
The table below highlights the currency impact on Scales profitability. To simplify the situation, I assume Scales receives the same price in the foreign currency as last year and produce the same amount of apple. Additionally, the shipping costs will be the same as last year.
In theory all additional revenue should go to the bottom line. If this perfect scenario came to pass, we would see an additional earnings per share of 6.9c. Add that to FY14 15.3c+6.9c = 22.2c
Now that would put Scales on a pe = 7.7. Food for thought.
2014 fx rate Revenue (NZD) Current fx rate Est Revenue Increase USD 44.00% 0.82 69876 0.7 81854 11979 Euro 33.00% 0.6 52407 0.62 50716 -1691 UK 20.00% 0.49 31762 0.45 34585 2823 CAD 3.00% 0.9 4764 0.86 4986 222 158808 172141 13333 tax 3733.231513 NPAT 9600 Additional eps 0.069
And they get more for all that dog food as well
The best place to go to understand the company is straight to the prospectus and recent annual report. While I don't work industry, I have read the documents published in detail and spoke to management.
Not including the currency benefits, I think Scales can grow their business at an annual rate of close to 10% with the additional capital available from the IPO and organic growth. I expect acquisitions as well. So definitely not a stalwart.
There are numerous risks in the horticulture business. Pests, exchange rate, weather, apple prices etc. Scales has managed to navigate the Russian situation very well. Apples have traditionally been commodity products. That is now changing as NZ apples can demand a premium. Their orchards are spread out across the Hawkes Bay, so hail damage should be minimal. They have irrigation systems to help them during droughts.
Australia is a key upside risk. If we can get better access to this market, it would be a massive bonus. There are a few apples making it into Australia at the moment, but I think we should be conservative here. Asia is currently setting the price premium for Mr Apple. And they simply can't get enough of our apples.
My edge? I don't have an edge. All the information that I have is in the public domain. I just think the market is inefficient. This is a small cap stock in a market enthralled by tech and power companies. If I can steal a stevefleming quote. "Share price follows earnings growth". I can see earnings increasing at Scales, thus I expect the share price to grow. I am comforted by a low pe and high dividend yield. That is my safety net.
W69 the dog's welfare champion,too!??
PS.
You are not the only one who can rant and rave,but it a bit much when you are critical of greedy businesses, looking for higher than 10% ROE, or ROC, while chasing 30% to 40% yourself.
Also you may not be aware the SCL's CEO is an ex banker.!
Moral issues should be discussed on an off market thread.
Very good analysis there mate. I would venture to suggest that all the risk to the currency is too the downside, (with potentially another two or three reductions in the OCR over time), and accordingly all the risk to eps gains is to the upside.
Its very tempting to have another bite of this juicy prospect. (note to self, how can I resist using all these weak puns ?).
Loving the discussion guys, both for and against.
Must say I was bit nervous through the fruit fly period this year (Jan and Feb being active) after I got into the stock late last year. However, I've hung on knowing that it was just small blip in the bigger picture as I believed in the company's future prospects and sure enough SCL is the start in my portfolio atm.
Just my two cents....
Thanks Roger,
I don't see Scales making all those gains in FY15, but perhaps they might make half of them. So perhaps 15.3c +3.5c= 18.8c. Apple prices are key.
Of course, Coolstores will have a better year than last, so we should see some additional eps from them.
PSE, I'm not an insider, but an insider is buying at present. See the recent notice.
https://www.nzx.com/files/attachments/214331.pdf
But my target returns is not at the expense of my stakeholders (customers/employees/suppliers etc) are they?
Just a punt on price movements, not much different from backing horses at the TAB except more science to this form of punting / speculation. Some even call it investing
Yep i knew Borland is a banker by trade, probably still is deep down.
I went to school with one of the non executive directors.
I am still on the fence with this one, is there any way to know the earnings history of the business? They obviously intend to grow earnings quickly but 2013 and 2014 profit results were similar.
I think NZ makes fantastic apples like eve apples, apparently a different company though. Scales is targeting the asian and middle eastern markets?
Noodles page 18 of the 2014 annual reports that they take cover for 75% of net foreign exchange for the next 12 months, presumably there will be a delay and we will be sure of a benefit from the NZ currency decline not confident of your analysis though. It's a good sign they could maintain earnings with currency against them.
I like the balance sheet.
Percy the growing of supply is great, presumably this demand is there for the apples. I can't see little old NZ flooding the market.
44% growth in premium varieties by 2018, I need to see when these were planted - will they steadily increase or come all at once at the end. Will keep digging.
The main thing above all else to me is assuming the company's main growth driver is apples then are these the right varieties, will they remain 'flavour of the month'. Lots of orchards get pulled out.
Beautiful Roxburgh Red apricots are now a thing of the past as a fickle consumers can't stand spots.
So I am not saying insider information for trading, Lynch and Bill Gates as growth value investors if you will permit the term were not insider traders but insider holders of growth stocks as the price of these companies took them away from all margins of safety in terms of assets and historical earnings.
Insider holding is legitimate.
I would love to know the perspective of a consumer in the target markets or an NZ orchardist as to the prospects of scales. Maybe someone can enlighten me?
I still like to buy those dogs with the fleas jumping off though, growth stocks seem risky as hell in comparison. Not scales because the market is not valuing it as a growth stock, I am not sure if it is either. Could still be a cyclical or a stalwart.
Yes, Asia, Middle east, Europe, and UK are the main markets.
They took some cover in Jan when USD was in the low 70's. I imagine they are taking more right now. I can tell you that brokers have far higher USD rates factored into their analysis.
They have had a planting program in Premium apple for a while. See pg.21 to get a picture. So it should come on gradually.
So far they have been getting this right. I don't think it will be a fad that Asians prefer sweeter apples.
Thanks noodles, it's a little tricky but a large part of the increase in the volumes of the special varieties has already happened and continues to happen in the 2015 and 2016 years slowing down a bit 2017 18 as the whole lot becomes mature.Braeburn and Royal Gala have been around a long time lending me to think the varieties don't change that quickly, yup apples less sweet good idea should continue to work.
Definitely falling dollar is great and I agree the analyst's reports on this one look pretty lacksidaisical. We are not talking about BHP right.
The report also mentions that 2013 and 2014 were good years for Braeburn and Royal Gala prices.
So I agree with your story, it looks like a growth spurt in 2015 2016 then the company goes back to being a stable stalwart. Have I got that right or are they investing in more orchards.
They may have other plans for growth but nothing concrete I can see.
Pretty cool to buy a 'biological asset'.
All the best with this one guys I wish you well, I may have considered it when it was cheaper but I was looking the other way at the time. From $1.7 to $2.1 is not enough of a margin of safety for me, doesn't seem too unrealistic though.
The short term growth initiative are:
-Increased Premium apple supply. This is via replanting of existing orchards.
-Increased coolstorage with an Auckland presence.
Medium term, I expect that they will be looking for a Tauranga coolstore to give themselves a national footprint.
They have also stated that they wish to expand the range of the food ingredients business.
Then there is the balance sheet capacity for acquisitions.
I understand most of the focus for apples will be in marketing rather than volume. However, they have been planting premium varieties last year. These won't mature until 2020. So still lots of premium apple growth to come.
Stocks not really $1.73 as it trades cum a fully imputed divvy and goes ex very early July. Its easy to make the case that those getting in now are really only paying $1.67 as holding for five minutes doesn't really entitle you to that dividend so I always look at this sort of thing, (buying very close to a large divvy), on a ex divvy basis. $2.10 / 1.67 = potential 25.7% capital gain isn't too shabby in a market that's generally priced within an inch of full value.
What happens to earnings if we drop to 60 cents U.S. :)
You are really paying $1.73 because they will typically lose 7c when they go ex divvy - I remember recently having this debate on the HNZ forum.
http://www.nzherald.co.nz/business/n...ectid=11465673
Looking good for apple and kiwifruit businesses
Thanks for the link,
It is great that we can sell our apples at a premium. Milk powder is just a pure commodity and sells at a standard rate around the world. Yet Scales and Seeka are priced on much lower multiples than listed stocks in the dairy industry. Go figure!
Yes Tim we did and the point I made there and reiterate here is that if you're looking at this as a one year investment with a target price of meeting broker expectations of $2.10 in 12 months time your net entry price is $1.67 for precisely the reason you mentioned.
For those that don't want the dividend they can feel free to buy immediately after the divvy for $1.67 if it falls that far temporarily and they're still in the same position of looking at a 25% capital gain (2.10 / 1.67).
How long does it take the average stock to recover the dividend paid back into its SP is something people might want to DYOR on.
Seems bit weaker day for orchard sector today, both for SCL and SEK.
You guys didn't tell me how hard it was to buy a decent chunk of these things. Thanks to some spirited selling yesterday have now got most of what I am after. Hope those sellers yesterday were idiots and don't know of an impending disaster or something
Bit of a worry how weak the share price been this week, good for buying but maybe signals post ASM blues maybe. Were the messages that good?
Hope this doesn't turn out to be just a 'dividend stripping' exercise to mitigate losses. Not into that sort of high finance stuff, all seems a bit risky.
Love that dog tucker division
.
Scales announced 7 cent dividend on May 18. Share price then was $1.70. Announcement did not make price move.
Roger says that at $1.70 the 7 cents is 'included' - if buying effectively at $1.63
Does that mean that the Scales share price has effectively fallen since the divie was announced? (even though it has reached $1.76)
If price falls by 7 cents on July 1st the chart is going to look a bit worrisome.
Hope I haven't been sucked in by hype here
That's why it's often better to take a position ex divvy aye winner, the price often overshoots the divvy amount significantly to the downside eg Contact would be a recent example plus although divvy is fully imputed it still has 5% RWT deducted so something to consider.
I agree Couta - I've been arguing this earlier on thread and previous on HNZ, the other logic is a bit warped I reckon unless you are punting on a dividend strip i.e 3 dividends in 366 days and that's what it is - a punt!
Seems like I have made a big mistake and stuffed up buying last week .... should have waited until after the record date of July 1st
The dividend thing didn't cross my mind as generally divies don't come into my expectations. Just bonuses if they eventuate
Bugger
History would often prove this wrong, take Spark which was about $3.10 the day before it went ex in March its nearly July and its still hovering around $2.70- $2.80 ish yet it only shed a 9c divvy, there's just too many variables to make any hard and fast rules on pre divvy recovery price.
Winner - I can promise you that the price doesn't always recover at all more often the opposite, Methven this week an example so when they say I really paid $1.16 for my Methven they really paid $1.20 now $1.14
And $1.10 would be a great time to buy!
Probably at Londn School of Economics ---- they a lot of of good stuff in this field.
No doubt somebody somewhere has done a study in New Zealand
I know of those studies Roger but my own studies of the NZX over the last few years has shown it doesn't seem to want to play ball with the historic overseas results probably because us Kiwis want to do it our way aye:cool:
Most probably correct on the shares you hold,but the ones I hold, would most probably confirm Roger's study.
Not every one,but most.
The reason for this is people say I will hang onto this dead duck until I get the divie,then I will sell,while the good companies see people wanting to hold, and add to their holding.
Looked through an academic database for such things. I love reading Journal of portfolio Management and Journal of Finance and all those sort of magazines.
Dividend stripping seems to work in Australia - esp higher dividend paying stocks and in rising markets. Optimum returns achieved buying at least 30 days before ex date.
Tax a bit of an issue over there. It seems you have to hold the stock for at least 45 days to be able to claim franking credits. This doesn't apply in NZ does it?
Suppose not many of you dividend strippers here worry about the tax on capital gains either.
Hope Scales is a good dividend stripping stock.
Hey winner problem is we are not in a rising market so better to buy Scales post divvy aye, now there's a thought you could sell now at $1.70 and buy back at $1.58 post divvy:cool:
If you think you have SCL, wrong sell.If you don't know, you should not have brought.
I have done my research before buying,and attending the ASM confirmed my research.
I therefore look forward to SCL improving the business,growing the dividend, and the market waking up to what a fine company SCL is.Growing eps will see the sp expand.I am well positioned.!
Well, when I have done my research on a company, and are looking to buy,I will always buy to collect any upcoming dividend,Never once have I waited for a share to go ex divie before buying.Never.And never will.
Even better is buying just before a divie,and over about 7 or 8 months you get two divies.Really cranks up my returns.
MVN not a good example (recently of this 'dividend stripping'. Hope Scales is different
Table is MVN price 1 month before ex date, ex date, and 1 month after with the returns shown
Last 3 dividends hardly worth the effort to get a free dividend.
If anything it shows MVN is a **** stock anyway - priced as a bond methinks and doesn't seem to even reacted to lower interest rates either. Those numbers enough to put anybody off, except those who think the dividend is safe as houses.
Interesting stuff
Wasn't that TMO decision not giving that try a doosey- go HIGHLANDERS
Great game.doosey....I would not liked to have called it.!