By Jenny Ruth
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Friday 22nd October 2010 |
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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
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