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Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Skellerup (SKL)</h2>
1H20 Result — Initial Impressions: Industrial slows down &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Skellerup (SKL) reported a relatively weak 1H20 result, with NPAT down -10% on the prior comparable period to NZ$12.1m, and behind our expectations. The Industrial division was the key area of disappointment versus our expectations as it was hit by a combination of a slowdown in key markets and impacts from US/China trade tariffs.
This is the first result with IFRS 16 applied to reported numbers, with prior numbers having not been restated makes direct comparisons difficult. Our back of the envelope calculations suggest that the adoption of IFRS 16 has had a small negative impact to reported NPAT but no material impact to reported EBIT numbers.
SKL will pay an interim dividend of 5.5cps (50% imputed), flat on the prior period and in line with our expectations.
Key highlights: &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<ul>
<li>Industrial division – The industrial division reported a headline -15% drop in EBIT on the back of weakness in the USA and European automotive segments, combined with the ongoing impact of US/China trade tariffs. Commentary suggests a delay in US infrastructure projects weighed on the 1H20 result, which may provide some uplift in later periods should we see those projects come on stream.</li>
<li>Agri division – On the positive side, the Agri division has continued to perform well reporting EBIT growth of +5%. Growth in international markets, namely USA, and continued operational gains at its Wigram facility helped buoy the result. We expect earnings growth in this business will be hard to replicate going forward given headwinds domestically (close to peak cow in our opinion) and the lower margin nature of international market growth.</li>
</ul>
Outlook
We expect to see downgrades to market expectations. SKL provided first time full year guidance of FY20 NPAT “consistent with the result achieved in the pcp” or ~NZ$27m, which implies a downgrade relative to our forecasts (FB FY20E NZ$29m).
Conference call — 11:00am (NZT)
SKL will host a conference call at 11:00am NZ time. Dial in 0800 453 197 (Aus – 1800 502 593). Confirmation ID: 673 8081&nbsp;
Profit and loss summary (NZ$m)
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.1&amp;permmsgid=msg-f:1658365979622263599&amp;th=1703b31272fa4b2f&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ85paei3hYSZ9djoZLO53JtVwIVYOLvhCvCiMa_cFP4-w1gs69RU7-bH0xZofh7vhj9NFCxuYY6rXVBbPjnjk13XZwlWmbicZfFCFoHcUxxaXZj-PeNDjyoD3o&amp;disp=emb" width="685" height="638" class="editor-image img-responsive" data-image-whitelisted=""></figure>
Source: Company reports, Forsyth Barr analysis * includes IFRS 16
Guy Hooper&nbsp; Analyst, Equities Forsyth Barr Limited
P: +64 4 495 5255 | TF: 0800 367 227&nbsp; Level 22 , 157 Lambton Quay, Wellington

Skellerup (SKL)
1H20 Result — Initial Impressions: Industrial slows down &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Skellerup (SKL) reported a relatively weak 1H20 result, with NPAT down -10% on the prior comparable period to NZ$12.1m, and behind our expectations. The Industrial division was the key area of disappointment versus our expectations as it was hit by a combination of a slowdown in key markets and impacts from US/China trade tariffs.
This is the first result with IFRS 16 applied to reported numbers, with prior numbers having not been restated makes direct comparisons difficult. Our back of the envelope calculations suggest that the adoption of IFRS 16 has had a small negative impact to reported NPAT but no material impact to reported EBIT numbers.
SKL will pay an interim dividend of 5.5cps (50% imputed), flat on the prior period and in line with our expectations.
Key highlights: &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

Industrial division – The industrial division reported a headline -15% drop in EBIT on the back of weakness in the USA and European automotive segments, combined with the ongoing impact of US/China trade tariffs. Commentary suggests a delay in US infrastructure projects weighed on the 1H20 result, which may provide some uplift in later periods should we see those projects come on stream.
Agri division – On the positive side, the Agri division has continued to perform well reporting EBIT growth of +5%. Growth in international markets, namely USA, and continued operational gains at its Wigram facility helped buoy the result. We expect earnings growth in this business will be hard to replicate going forward given headwinds domestically (close to peak cow in our opinion) and the lower margin nature of international market growth.

Outlook
We expect to see downgrades to market expectations. SKL provided first time full year guidance of FY20 NPAT “consistent with the result achieved in the pcp” or ~NZ$27m, which implies a downgrade relative to our forecasts (FB FY20E NZ$29m).
Conference call — 11:00am (NZT)
SKL will host a conference call at 11:00am NZ time. Dial in 0800 453 197 (Aus – 1800 502 593). Confirmation ID: 673 8081&nbsp;
Profit and loss summary (NZ$m)

Source: Company reports, Forsyth Barr analysis * includes IFRS 16
Guy Hooper&nbsp; Analyst, Equities Forsyth Barr Limited
P: +64 4 495 5255 | TF: 0800 367 227&nbsp; Level 22 , 157 Lambton Quay, Wellington

Skellerup (SKL): 1H20 Result — Initial Impressions: Industrial Slows Down

Skellerup Holdings

Skellerup (SKL): 1H20 Result — Initial Impressions: Industrial Slows Down