New Zealand Professional Investment Services Firm

Forsyth Barr

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.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Scales (SCL) Trading Update and Guidance Update</h2>
Scales (SCL) has this morning released an update to the market stating that FY21 Net Profit guidance is now expected to be in the upper half of the previous range of NZ$32m-NZ$37m (Forbarr NZ$34.8m)
The company has declared an interim dividend for 1H21 of 9.5cps (Forbarr 9.5cps) and reiterated the commitment to pay an annual cash dividend of at least 19cps whilst holding net cash on balance sheet (FY21e net cash of ~NZ$100m)
First time FY22 guidance has also been provided (year end 31 December) with:
<ul>
<li>FY22 EBITDA between NZ$62m to NZ$67m (Forbarr NZ$70m, consensus NZ$76.4m)</li>
<li>FY22 NPAT between NZ$30.5m to NZ$35.5m (Forbarr NZ$37.9m, consensus NZ$37m)</li>
<li>Underlying Net Profit Attributable to Shareholders between NZ$23.5m to NZ$28.5m (Forbarr NZ$30.9m)</li>
</ul>
Key commentary for FY22
<ul>
<li>Selling prices within horticulture are expected to be in line with FY21</li>
<li>The group will likely experience increased logistics costs on FY21 with an expectation these will soften over time</li>
<li>The current initiatives within the horticulture industry are adequate to meet requirements for seasonal labour although the company notes an ongoing shortage of labour generally</li>
<li>The strategic focus for FY22 will be on improving gross margin, supported by a material level of capex</li>
</ul>
Our view
SCL has benefited materially from its pet food exposure during FY21 which has more than offset headwinds experienced in the horticulture business in regards to cost pressure. Like all agricultural businesses in NZ, SCL is exposed to rising shipping and wage inflation, although we expect freight costs to normalise in the medium term. We see further opportunity for M&amp;A within the US pet food sector given the company’s strong balance sheet position of ~NZ$150m cash (with long term borrowing ~NZ$55m). Given supportive horticulture prices for FY22, we assume higher than expected shipping costs to be the key difference between company guidance and consensus forecasts. &nbsp;

Scales (SCL) Trading Update and Guidance Update
Scales (SCL) has this morning released an update to the market stating that FY21 Net Profit guidance is now expected to be in the upper half of the previous range of NZ$32m-NZ$37m (Forbarr NZ$34.8m)
The company has declared an interim dividend for 1H21 of 9.5cps (Forbarr 9.5cps) and reiterated the commitment to pay an annual cash dividend of at least 19cps whilst holding net cash on balance sheet (FY21e net cash of ~NZ$100m)
First time FY22 guidance has also been provided (year end 31 December) with:

FY22 EBITDA between NZ$62m to NZ$67m (Forbarr NZ$70m, consensus NZ$76.4m)
FY22 NPAT between NZ$30.5m to NZ$35.5m (Forbarr NZ$37.9m, consensus NZ$37m)
Underlying Net Profit Attributable to Shareholders between NZ$23.5m to NZ$28.5m (Forbarr NZ$30.9m)

Key commentary for FY22

Selling prices within horticulture are expected to be in line with FY21
The group will likely experience increased logistics costs on FY21 with an expectation these will soften over time
The current initiatives within the horticulture industry are adequate to meet requirements for seasonal labour although the company notes an ongoing shortage of labour generally
The strategic focus for FY22 will be on improving gross margin, supported by a material level of capex

Our view
SCL has benefited materially from its pet food exposure during FY21 which has more than offset headwinds experienced in the horticulture business in regards to cost pressure. Like all agricultural businesses in NZ, SCL is exposed to rising shipping and wage inflation, although we expect freight costs to normalise in the medium term. We see further opportunity for M&amp;A within the US pet food sector given the company’s strong balance sheet position of ~NZ$150m cash (with long term borrowing ~NZ$55m). Given supportive horticulture prices for FY22, we assume higher than expected shipping costs to be the key difference between company guidance and consensus forecasts. &nbsp;

Scales (SCL): Trading Update and Guidance Update

Scales Corp Ltd

Scales (SCL): Trading Update and Guidance Update