This company is the designer, manufacturer and distributor of polymer products and vacuum systems and it has proven its resilience over the past six months. The company is distinguished for providing engineered and innovative solutions for customers in dairy rubberware, water and related infrastructure, roofing, plumbing, automotive, mining and a range of other industrial applications.

This company has delivered sustainable growth and registered CAGR of 4.43 per cent in top-line over the period of FY 2016-FY 2020. Notably, this stock has delivered a return of ~69.04% in the span of previous 6 months and, in the time frame of 3 months, the stock rose by ~33.96%.

Skellerup Holdings Limited (NZX: SKL)

Investment Summary:

  • SKL is possessing robust balance sheet and the company has posted operating cash flow of $48.0 million.
  • SKL declared final dividend of 7.5 cps which brought full-year pay out to 13.0 cps.
  • SKL stated that the success is attributed to ongoing focus towards improving productivity as well as efficiency throughout all the operations.

Skellerup Holdings Limited has two divisions: Agri and Industrial. The company’s main feature is to develop strong and deep relationships with key partners, mainly OEMs and major distributors.

Over FY16 to FY20, the company has grown its net income to $29.1 million from $20.5 million. During the same period, operating income increased to $42.5 million from $29.4 million. The company registered CAGR of 9.65% and 9.15%, respectively in the operating income and net income, over the period of FY16-FY20.

Strong Growth in Operating Cashflow

In FY 2020, the company reported net profit after tax (NPAT) of $29.1 million, operating cash flow of $48.0 million, and declared a gross dividend pay-out of 13 cents per share.

The operating cash flow of the company was up by 66 per cent, which funded shareholder dividends, capital expenditure, the acquisition of Silclear and a reduction in net debt to $28.5 million at the end of FY20. Considering that net debt is just 10% of the company’s total assets, its balance sheet is in a robust position in order to support continued prudent growth in business. Before the outbreak of COVID-19, the company was on track to achieve another record result.

Highlights of FY20 (Source: Company Reports)

Agri-Division Delivered Record Results

The strength and resilience of Agri business can be witnessed in the record result, delivering Earnings Before Interest and Tax (EBIT) of $25.4 million. It was mentioned that growth in sales of essential dairy rubberware products into the USA as well as strong contribution from Silclear were the primary contributors to excellent FY 2020 result.

Skellerup is the second-largest manufacturer of dairy rubberware in the world. The company’s products are essential to the continued global supply of milk as well as milk products, playing a crucial role in protecting milk quality and animal health. The demand was robust throughout the various lockdown periods and the company’s facilities in New Zealand and the United Kingdom continued to provide food-grade consumable products to customers globally. NZ remains largest market generating 41% of Agri Division revenue from the sales of dairy consumables as well as rubber footwear and despite COVID-19 disruption, the sales were flat on pcp.

The Agri Division result clearly shows the importance of the company’s products to the global dairy industry as well as dairy products the industry delivers to the world.

Key Data (Source: Company Reports)

Industrial Division Impacted by Pandemic

The Industrial Division provides variety of often crucial components mainly for Original Equipment Manufacturers (OEMs) for various uses involving potable water, health, medical, sporting and roofing applications.

The Industrial Division is mainly concentrated on international markets and the USA is the largest market delivering 33 per cent of FY20 Industrial Division revenue, followed by Australia with 28 per cent. Notably, NZ market contributed 12 per cent of Industrial Division revenue in FY20.

Revenue from this division was steady until the pandemic, which slowed demand in the final quarter of FY20.

Some sales growth was achieved in sporting and leisure, health/medical, electrical and roof sealing applications. The overall impact on the division was neutral, with revenue flat on Y-o-Y basis, in spite of the full year contribution of Nexus. Gross margin was flat and indirect costs increased by 9 per cent due to the acquisition of Nexus.

Silclear Wins Queens Award

Silclear Limited, a part of Skellerup Group, has won the popular Queen’s Award for Enterprise - International Trade, the UK’s highest award for business success. The company’s silicone products have an important role in ensuring the safe transportation and collection of milk in dairy installations throughout the world.

Its products are an important consumable for the dairy industry and offer superior durability and strength compared to alternatives. This has generated significant interest from international consumers, with sales overseas increasing by 76% over the three-year application period and the ratio of sales exported rising to 88% of total sales.

Key Risks

The company imports raw materials and finished goods and exports finished goods to various foreign customers. The main foreign currencies traded are US dollars (USD), Australian dollars (AUD), British pounds (GBP) and Euro (EUR). Therefore, it is exposed to foreign exchange risk.

On October 2, 2020, the stock price of SKL ended the session at NZ$2.840 per share, reflecting a decline of 0.35%.

 

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