New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<ul><li>We view Scales' (SCL) acquisition of (1) 240 hectares of primarily premium variety planted orchards (114 hectares owned and 126 hectares leased) from Bostock Group, and (2) the remaining 50% of juice concentrate manufacturer, Profruit (formerly owned by Bostock Group), favourably.</li><li>We estimate an implied EV/EBITDA (pre-IFRS 16) multiple of ~4x for the orchards component versus SCL's FY24 group multiple of ~6x.</li><li>SCL intends to sell two of its orchards and, based on recent transactional evidence, we foresee a reasonable likelihood that SCL on a net basis won't deploy any additional capital into Mr Apple. </li></ul>

We view Scales' (SCL) acquisition of (1) 240 hectares of primarily premium variety planted orchards (114 hectares owned and 126 hectares leased) from Bostock Group, and (2) the remaining 50% of juice concentrate manufacturer, Profruit (formerly owned by Bostock Group), favourably.We estimate an implied EV/EBITDA (pre-IFRS 16) multiple of ~4x for the orchards component versus SCL's FY24 group multiple of ~6x.SCL intends to sell two of its orchards and, based on recent transactional evidence, we foresee a reasonable likelihood that SCL on a net basis won't deploy any additional capital into Mr Apple. 

<ul><li>The global pet care market appears to be improving. While recent trends from global pet care companies have been relatively sluggish, their outlook comments painted a positive picture of: (1) expectations for a return to solid growth over the remainder of 2024, and (2) ongoing investment to support future growth, a combination of new product development and manufacturing investment.</li><li>We acknowledge the limitations when assessing results on a quarterly basis relative to Scales (SCL) given the lag impacts between SCL's volumes and customer revenue, along with the unknown inventory/market share impacts.</li><li>However, our analysis shows Nestle is a reasonable proxy and commentary is supportive for a return to growth for SCL's Global Proteins division. </li></ul>

The global pet care market appears to be improving. While recent trends from global pet care companies have been relatively sluggish, their outlook comments painted a positive picture of: (1) expectations for a return to solid growth over the remainder of 2024, and (2) ongoing investment to support future growth, a combination of new product development and manufacturing investment.We acknowledge the limitations when assessing results on a quarterly basis relative to Scales (SCL) given the lag impacts between SCL's volumes and customer revenue, along with the unknown inventory/market share impacts.However, our analysis shows Nestle is a reasonable proxy and commentary is supportive for a return to growth for SCL's Global Proteins division. 

<ul><li>Scales' (SCL) FY23 result did little to fundamentally change our view on the company's positioning and outlook.</li><li>We walk away comfortable that: (1) Horticulture earnings will recover to near pre-COVID levels in FY25, (2) customer de-stocking impacts within Global Proteins should be largely complete in the next six months, and (3) the medium-term outlook for Global Proteins earnings remains robust.</li><li>We continue to see SCL as well positioned to capture solid earnings growth from ongoing constructive animal care trends, while near-term earnings are also supported by a Horticulture recovery. </li></ul>

Scales' (SCL) FY23 result did little to fundamentally change our view on the company's positioning and outlook.We walk away comfortable that: (1) Horticulture earnings will recover to near pre-COVID levels in FY25, (2) customer de-stocking impacts within Global Proteins should be largely complete in the next six months, and (3) the medium-term outlook for Global Proteins earnings remains robust.We continue to see SCL as well positioned to capture solid earnings growth from ongoing constructive animal care trends, while near-term earnings are also supported by a Horticulture recovery. 

<ul><li>We expect Scales (SCL) to round out a challenging FY23 with a result at the top end of its underlying NPAT guidance range of NZ$14.0m–NZ$19.0m.</li><li>Investor areas of focus will be: (1) insights into the recovery pathway for the horticulture division particularly with the 2024 crop shaping up to be strong;</li><li>(2) global proteins outlook as demand/inventory levels begin to normalise (where we expect commentary to be cautiously optimistic); </li></ul>

We expect Scales (SCL) to round out a challenging FY23 with a result at the top end of its underlying NPAT guidance range of NZ$14.0m–NZ$19.0m.Investor areas of focus will be: (1) insights into the recovery pathway for the horticulture division particularly with the 2024 crop shaping up to be strong;(2) global proteins outlook as demand/inventory levels begin to normalise (where we expect commentary to be cautiously optimistic); 

<ul><li>Scales (SCL) provided a reassuring FY23 trading update which addressed investors' key concerns around long-term horticulture impacts and the timing of an earnings recovery.</li><li>SCL confirmed: (1) there are no signs of further tree losses or long-term damage from Cyclone Gabrielle, (2) no changes to the FY23 NPAT guidance range of NZ$14m to NZ$19m, and (3) first time FY24 NPAT guidance of NZ$30m to NZ$35m: the upper end reflects a return to pre-COVID profitability. </li><li>SCL is typically conservative in issuing guidance, and we believe this update meaningfully reduces near-term uncertainty. </li></ul>

Scales (SCL) provided a reassuring FY23 trading update which addressed investors' key concerns around long-term horticulture impacts and the timing of an earnings recovery.SCL confirmed: (1) there are no signs of further tree losses or long-term damage from Cyclone Gabrielle, (2) no changes to the FY23 NPAT guidance range of NZ$14m to NZ$19m, and (3) first time FY24 NPAT guidance of NZ$30m to NZ$35m: the upper end reflects a return to pre-COVID profitability. SCL is typically conservative in issuing guidance, and we believe this update meaningfully reduces near-term uncertainty. 

New Zealand

Scales Corporation Limited is a New Zealand provider of essential supply chain services for primary exporters, importers and FMCG businesses. The Company's horticulture division involves the global exporting of apples while its storage and logistics division includes nationwide cold storage coverage and a logistics business specialising in sea and air freight of primary produce.

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Scales Corp Ltd (SCL NZ)

Scales - How About Them Apples

We estimate an implied EV/EBITDA (pre-IFRS 16) multiple of ~4x for the orchards component versus SCL's FY24 group multiple of ~6x.

Forsyth Barr

Scales - Wagging Tails

While recent trends from global pet care companies have been relatively sluggish, their outlook comments painted a positive picture

Forsyth Barr

Scales - FY23 Result — Set to Dazzle

We continue to see SCL as well positioned to capture solid earnings growth from ongoing constructive animal care trends, while near-term earnings...

Forsyth Barr

Scales - FY23 Preview — Bearing Fruit?

We expect Scales (SCL) to round out a challenging FY23 with a result at the top end of its underlying NPAT guidance range of...

Forsyth Barr

Scales - Over the Core Issue

Scales (SCL) provided a reassuring FY23 trading update which addressed investors' key concerns around long-term horticulture impacts and the timing...

Forsyth Barr

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