SCL - Scales

[kiwi2007]

https://www.nzx.com/announcements/423143

MARKET UPDATE

2023 TRADING

The directors of Scales Corporation Limited (NZX:SCL) have reiterated market guidance for the twelve months to 31 December 2023, of an Underlying Net Profit after Tax Attributable to Shareholders range of $14.0 million to $19.0 million.

Managing Director Andy Borland notes "2023 has been a very challenging year, particularly for our Hawke's Bay staff and the wider community, following Cyclone Gabrielle. We are very proud of the resilience shown by all of our team members in response to this event. Their ability and effort in resuming operations and remediating damaged orchards was outstanding. It is very pleasing to see the "fruits" of this work with all affected orchard area now cleared of silt and remediated, and with a promising 2024 apple crop currently on the trees.

As previously reported, Scales continues to benefit from our diversified nature and, once again this year, from the performance of the Global Proteins division. Trading has continued positively in the second half of the year, despite the impact of post-COVID rebalancing of inventories amongst petfood manufacturers.

We are particularly pleased with the expansion into the European petfood ingredients market this year, via joint venture Esro Petfood BV. This investment is further positive progress in the international expansion of the Global Proteins division and we look forward to providing further commentary on the division at the time of the 2023 results release, in February next year".

2024 GUIDANCE

Looking ahead to the 2024 financial year, directors advise an Underlying Net Profit after Tax Attributable to Shareholders Guidance range of $30.0 million to $35.0 million.

Nice...

[Waltzing]

A sector that we should not forget to cover and take an interest in...

Better have a good read ..

[kiwi2007]

Chart looking good: Just popping it's head up over the top of the last 10 months trading range. Increasing its  divi is forecast but with lower imputation.  380-85c are analysts (2) forecast for 2024.

Only 5700 shares on offer, anyone with a spare $20K could clear them out and do me a favour ;o). 

[Basil]

Brought up a 5 year chart, not a random pick, (5 years is always my standard reference period for analysis) and it was $4.50 5 years ago.  Oh dear.  My dislike for agri stocks is they have good years and bad years, good harvests and bad ones and are subject to wide variations in the price of the commodity along with all the other agricultural risks of disease, pestilence, droughts and floods etc.

Was rewarding for original IPO investors at from vague memory about $1.50 but this has in recent years traded on multiples that don't really reflect all the risks.
Looking at the eps off Jarden's website for 2018 to 2022 we see eps as follows 0.20   0.32   0.15   0.19   0.14
Average that out to eliminate seasonal variations in earnings from one year to another and we get 20 cents eps a share.  Put a no growth agri risk PE of 8.0 on that because there is no clear pattern of growth and we get $1.60 and that explains why I am not a shareholder, nor likely to be one anytime soon.

I'm simply not buying into the wonderful opportunities for growth with this one because there hasn't been any true growth over the years.  The risk with this one to my mind has always been in seeing a good year forecast and paying too much assuming it's the start of some new trend of nicely increased profits going ahead in the medium to long term.  A good year's forecast is just that, a forecast of one year's good harvest and anticipation of selling at favorable prices.  The year thereafter is just as likely to be very different as any other outcome.

Maybe I'm missing something with this one but the average numbers don't paint a good enough picture for me to bother too hard trying to find it.

The other point that I think is also worth noting is that the risks from extreme weather events is probably going to keep getting worse every year with global warming.  It wouldn't surprise me at all if we see another extreme weather event down there this summer and if not this summer, probably next.

[lorraina]

Future growth will come from their Pet Food ingredients businesses in NZ,AUssie,USA and Europe.
From SCL's last update.
We are particularly pleased with the expansion into the European pet food ingredients market this
year, via joint venture Esro Petfood BV. This investment is further positive progress in the
international expansion of the Global Proteins division and we look forward to providing further
commentary on the division at the time of the 2023 results release, in February next year".

[BlackPeter]

Brought up a 5 year chart, not a random pick, (5 years is always my standard reference period for analysis) and it was $4.50 5 years ago.  Oh dear.  My dislike for agri stocks is they have good years and bad years, good harvests and bad ones and are subject to wide variations in the price of the commodity along with all the other agricultural risks of disease, pestilence, droughts and floods etc.

Was rewarding for original IPO investors at from vague memory about $1.50 but this has in recent years traded on multiples that don't really reflect all the risks.
Looking at the eps off Jarden's website for 2018 to 2022 we see eps as follows 0.20   0.32   0.15   0.19   0.14
Average that out to eliminate seasonal variations in earnings from one year to another and we get 20 cents eps a share.  Put a no growth agri risk PE of 8.0 on that because there is no clear pattern of growth and we get $1.60 and that explains why I am not a shareholder, nor likely to be one anytime soon.

I'm simply not buying into the wonderful opportunities for growth with this one because there hasn't been any true growth over the years.  The risk with this one to my mind has always been in seeing a good year forecast and paying too much assuming it's the start of some new trend of nicely increased profits going ahead in the medium to long term.  A good year's forecast is just that, a forecast of one year's good harvest and anticipation of selling at favorable prices.  The year thereafter is just as likely to be very different as any other outcome.

Maybe I'm missing something with this one but the average numbers don't paint a good enough picture for me to bother too hard trying to find it.

The other point that I think is also worth noting is that the risks from extreme weather events is probably going to keep getting worse every year with global warming.  It wouldn't surprise me at all if we see another extreme weather event down there this summer and if not this summer, probably next.

I guess if you assess an agricultural cyclical in the same way one would assess a toilet paper manufacturer, than you are right. No long term growth (unless they buy their competitors), and sure - the average earnings per share have been 26 cents over the last 10 years, which gives an average PE of 12.5 at the current SP of $3.30. Not terrible, but not exciting either.

Just not sure, whether it makes sense to buy a cyclical just on average earnings and growth. The thing with cyclicals is, you buy them when everybody looks down on them and they are cheap (that's the easy bit), and you sell them when everybody loves them and they are dear (that's the hard bit).

FWIW - I bought / accumulated some over the last 6 months or so while everybody was trashing horticultural stocks ... and intend to hold until too many people on this forum tell me that they are the best thing since the invention of sliced bread.

Admit however, that their protein division (good point, lorraina) might turn into a real (and growing) money spinner and brake the cycle, so - who knows, maybe I'll stick with this cyclical longer than I currently imagine.

[lorraina]

From last year's agm presentation.
 [SLIDE 26: GLOBAL PROTEINS – WHAT WE LIKE ABOUT THE GLOBAL PROTEINS INDUSTRY]
I'd now like to touch on the future of the Global Proteins division, as we're very optimistic about its prospects.
We've summarised the attributes of the division on the current slide, which includes resiliency against market cycles
as well as above-average returns on investment. The worldwide nature of the opportunities also allows us to leverage
our existing networks, with our current focus being towards North America.
The industry is supported by many macro tailwinds including the global growth of the middle class and its associated
demand for protein. We see no abatement in the demand for protein for the foreseeable future.
Our petfood customers are also particularly optimistic about the future, and are investing substantial sums to meet
future demand.
Supply chains and sourcing of raw materials have been identified as the biggest future production challenges for
petfood manufacturers. Meateor and Shelby have a very experienced and well-connected leadership team and have
developed deep relationships with customers over 25 years, which gives us confidence we will participate alongside
our customers in this growth.
[SLIDE 27: GLOBAL AMBITIONS]
As a result of the opportunities I've just described, we have global ambitions for the division.
As shown on this slide, we already have significant operations in New Zealand, Australia and North America. North
America is the world's largest petfood market, with Europe being the second largest. As many of our existing customers
operate in Europe, we're continually looking for ways to extend our operations there. As a result, discussions regarding
potential opportunities are currently taking place.
[SLIDE 28: OUR EXPANSION MODEL]
The structure that we have in place today is a result of careful planning. We specifically target existing in-market
players with strong existing relationships and find a way to partner with them. We'll continue to adopt this strategy
for growth.
Once we've invested, we'll leverage our existing experience and relationships to achieve win-win synergies and growth
across the expanded Group. Our current investment parameters will ensure that potential opportunities have strong
earnings and cashflows, which allow a significant portion to flow to the parent company.

[Basil]

Pet food industry is highly competitive.  They'll need to take a "dogged" approach to trying to build scale and efficiencies.  Think they were doing this many years ago when I was a holder and made a few bucks out of this.  Not much progress looking at recent years earnings. BP - I am happiest sticking with my always used standard 5 year timeline reference for all stocks as I believe the most recent 5 years is the best guide to the next 5 years.  You're never going to convince me otherwise and likely I'll never convince you to change the way you assess stocks.  With average earnings of 20 cps I see little to get enthusiastic over.  I genuinely believe with deadly serious global warming now, we are now in a new era of really extreme weather events and the risks to Scales going forward are a lot higher than they were even 5 years ago.    Each to their own, good luck with this one.

[lorraina]

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SCL/409150/391657.pdf
I think you need to read page 28 onwards of their annual report.
Compare the ingredients results to the horticulture results,
 

[winner (n)]

Not really a horticulture company are they these days

[lorraina]

Not really a horticulture company are they these days

No.More a growth pet food ingredients company that has a bit of a legacy horticulture interest...lol

[KW]

No.More a growth pet food ingredients company that has a bit of a legacy horticulture interest...lol

Similar to RIC on the ASX if you want something to compare it too, they operate in NZ as well.  Just bought Oceania Meat Processors. 
https://www.stuff.co.nz/business/133509399/strategic-move-australian-pet-food-company-acquires-kiwi-meat-processing-company

[lorraina]

Good sector.
I have a good holding in Christchurch business that not only processes ingredients for pets but for humans too,[up pharmaceutical grade.]
Expansion has been hindered by Covid and logistics delays,however they are now getting back on track. 
 

[winner (n)]

Good sector.

Scales, Pharmazen, Ebos .......what a threesome in pet food

[lorraina]

One of the issues the sector has faced is the shortage of staff at the meat processors.
The meat works have therefore concentrated on the high profit cuts, rather than bothering with the bye products that the sector requires.
With the meat works attracting more staff,the issue is now [being] fixed.
 
Not sure whether I have told the story about Ziwi Peaks Rolleston factory.
Livers,Kidneys etc are boiled up,then cooled down and flattened.Then cut into dog biscuits.
The stink is horrendous.
Their factory is located between Rolleston Prison and Burnham Military camp.
A good southerly, the prisoners get to clear their sinuses,while a strong easterly means the army clears their's....lol