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Daily ShareChat: Scott Technology

By Jenny Ruth

Friday 22nd October 2010

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 Jenny Ruth

Scott Technology's earnings prospects are improving in each of its three operating activities but uncertainty on earnings sustainability should limit its share price performance, says broker McDouall Stuart.

Scott makes manufacturing systems for the whiteware industry, has joint ventures with Silver Fern Farms and an Australian beef processor to develop meat processing technology and produces laboratory equipment for the mining industry.

"Historically, the company's earnings have been volatile. The company has a relative high fixed cost structure and the revenue streams have fluctuated markedly, impacted by the whiteware industry's close relationship with economic cycles and the vagaries of currency movements," McDouall Stuart says.

Scott generates about 89% of its revenue from offshore contracts and earnings are impacted by the strength or weakness of the US dollar and the Euro. The current strength of the Euro should benefit Scott's competitiveness, the broker says.

"Trading conditions are improving and the company is securing global contracts in all three areas of operations which has forced Scott Technology to increase resources. The company is confident of the prospects in the current year as it takes advantage of growth opportunities."
McDouall Stuart values Scott shares at $1.42 and is forecasing net profit will fall from $3.8 million in the year ended August to $3.6 million in the current year before rising to $4.3 million in the year ending August 2012.

Recommendation: Hold

DISCLAIMER: To the extent that any of the content above constitutes advice, it is general advice that has been prepared without reference to investor’s objectives, financial situation or needs. Before acting on any advice, investors should consider the appropriateness of the advice and IRG recommend that investors should obtain appropriate financial, legal and taxation advice before making any financial investment decision. The report is based on information compiled from public information and private research. IRG have completed the report on a best endeavours basis and do not accept any liability of loss or damage. IRG suggest that clients use this as part of a decision making process and check key data before making any investment decisions.
Employees may have an interest in the securities discussed in this report.

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