One Industrial Stock Having Decent Fundamentals

As the market players are aware, the outbreak of COVID-19 has impacted several companies. However, now some companies are expected to perform well moving forward. This company is having robust business which is generating earnings as well as cash flow growth from delivering critical products to the customers. This company has recently delivered robust H1 FY 2021 performance as the company encountered earnings growth throughout all the businesses. This company is possessing decent balance sheet as well as low debt. It was also mentioned that it can maintain as well as grow the business with relatively low levels of capital expenditure. The stock of the company has delivered a return of ~32.91% in the span of past 3 months. Notably, over the past 6 months, the stock has witnessed an increase of ~58.4%.

Skellerup Holdings Ltd

Summary:

  • SKL continued to generate earnings and cash flow growth through delivery of critical products to its customers globally, which demonstrated the robust nature of business.
  • SKL possesses decent balance sheet which could help the company in achieving long-term growth objectives.
  • SKL has increased FY21 NPAT guidance which is now expected to be in the range of $33 million to $37 million.

Skellerup Holdings Ltd (NZX: SKL) is engaged in the business of designing, manufacturing and distribution of polymer products and vacuum systems. SKL operates under two divisions viz: Industrial and Agri. SKL generates around 80% of its revenue from international markets and its manufacturing and distribution facilities and partners are based in New Zealand, Australia, China, Vietnam, UK, Italy and the USA. The company has gained the reputation of providing innovative and engineered solutions for customers present across dairy rubberware, water and related infrastructure, roofing, plumbing, automotive, mining as well as a range of other industrial applications.

Stellar H1FY21 Performance

The company has presented a resilient performance in H1FY21 as it witnessed earnings growth throughout all the businesses. It logged a healthy revenue growth of 11% YoY to $136.6 million in the first half of the year. Despite the impact of Covid-19, the company has managed to move into the production with new products as well as customers throughout the world which has aide the revenue growth.

Resultantly, it recorded earnings before interest and tax (EBIT) of $27.6 million, an improvement of 53% YoY. The company’s Agri Division EBIT stood at $15.3 million, reflecting a rise of 56% on pcp and its industrial division EBIT amounted to $15.5 million, implying an increase of 52% on pcp. Apart from revenue growth coupled with the benefits of operational gains and improved margins, SKL posted NPAT amounting to $19.5 million, implying an increase of 61% on pcp.

Key Data (Source: Company Reports)

Decent Balance Sheet Strength

The company has stated that working capital improvements boosted the impact of the earnings growth to post operating cash flow amounting to $35.1 million, reflecting a rise of 33% on pcp.  Notably, this surpassed financing needed for the dividends as well as capital expenditure, allowing the reduction in net debt to $13.0 million at the end of December 2020.

Information on Dividends

The company designs as well as develops innovative engineered products which deliver real solutions to the original equipment manufacturer (or OEM) customers. The company has stated that record 1H earnings as well as operating cash flow, plus increased expectations for the full year allowed the Board to announce an 18% rise in the interim dividend to 6.5 cps, imputed 50%. The company’s business strengths primarily revolves around building strong as well as deep customer relationships, focusing towards critical components which are an essential part of the more complex system as well as having world-class manufacturing and distribution.

Outlook

SKL’s ability to swiftly develop new solutions in agri business provides it a competitive edge. SKL continued to generate earnings and cash flow growth through delivery of critical products to the customers around the world, demonstrating the robust nature of business.

The company continues to witness robust customer demand throughout the group. Driven by the resilient performance in H1FY21, SKL has increased FY21 NPAT guidance to the range of $33 million to $37 million. Notably, this happens to be an increase on the range of $30 million to $35 million which was advised in the month of October last year.

Meanwhile, the company is experiencing extended shipping times and higher freight costs due to congestion and availability. SKL’s industrial division posted the record EBIT of $15.5 million, reflecting a rise of 52% on pcp. In addition, revenue grew by 7% that reflected increases throughout the division but most notably increased sales of roof flashing as well as plumbing products in Australia and U-Dek marine foam decking in the US, Europe, Australia and NZ.

On February 19, 2021, the stock of the company ended the trading session in green as there was an increase of 1.20% to NZ$4.200 per share.

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