It’s unbelievable that a dedicated thread hasn’t been opened for this company yet. Contract manufacturing as an industry isn’t exactly the sexiest, but Scanfil has steadily and surely grown its business and expanded its product repertoire from network devices to just about everything possible. The return curve has been relatively weak in recent years, but value has been created in the long run, and Sievi Capital did spin off from there back in the day. For this decade, the return curve is likely among the best on the OMXH.
The company will undoubtedly consolidate the industry and make other acquisitions like the one seen today. With valuation levels still very low, it’s hard to see how this could go terribly wrong at the current levels below four euros.
A somewhat subdued quarter with goodwill impairment for one factory, but the second half should be very strong. Guidance was raised on the lower end of sales and a bit more aggressively on operating profit. Previous guidance was 36-41 million, with the new one being 39-42 million.
We seem to be about four million euros behind last year’s level in the first half. Adjusted operating profit was just under 38 million last year, so with simple math, operating profit should be about six million more than last year.
e. profitability is at a good level, and the result was quite in line with forecasts, so I think the growing sales in the rest of the year will easily translate to the bottom line.
Insiders are buying, the company is buying its own shares, this company performs excellently in other aspects too. My own refueling started a little over a euro and ended at 3.5 euros a few years ago. I wonder if it’s time to return to the buy side?
Scanfil Group’s Q3 2019 and January-September Review
Q3/2019: Growing revenue and strong profitability. HASEC integration on schedule.
July - September
Revenue EUR 152.3 (Q3 2018: 131.5) million, growth of 15.8%
Operating profit EUR 12.1 (8.8) million, 7.9% (6.7%) of revenue, growth of 38%
Profit for the period EUR 8.8 (6.9) million
Earnings per share EUR 0.14 (0.11)
A good quarter. The full-year forecast for sales and profit was slightly lowered, but considering the market uncertainty, it doesn’t seem as bad as for many other companies.
The report was indeed good! The changes in guidance were quite cosmetic, and there wasn’t much need to adjust forecasts. In particular, this year’s results are likely to be somewhat more weighted towards Q3 than expected.
There’s significant potential in selling volume manufacturing to HASEC’s current customers if even a few customers were to shift their volume production, currently mostly done by larger contract manufacturers in Central Europe, to Scanfil, for example, in Poland or China. This isn’t largely included in the forecasts. The process (including negotiations, evaluations, audits, etc.) could take two to three quarters per customer at best, so we might be wiser regarding the progress of this matter in the latter half of next year.
The burdens of the coronavirus and slowing economic growth are likely to hit Scanfil as well, and we expect an earnings warning from the company in the near future. On the other hand, Scanfil’s track record from periods of weaker economic growth is impressive: the company has never reported an adjusted operating loss, its worst EBIT-% in the 21st century is 4.3%, and during the financial and euro crises, the revenue drop remained at 10-15%. Therefore, our confidence in the company’s acid resistance is high, and we expect the company, with its strong balance sheet, to weather this crisis reasonably well. In the long term, the outlook is also good, provided the company succeeds in its organic and inorganic growth (growth is the most important long-term earnings driver, as last year’s margins already approached their sustainable long-term potential). We believe the fair value of the share is 5-6 euros, and the current price is at the 4 euro level, so the safety margins are starting to be reasonable. Thus, despite the high short-term risks, we did not change our view on the company but remain positive about Scanfil.
But the profit warning hasn’t appeared yet — is corona not hitting hard after all? We’ll get some indication next week at the latest, as the Q1/2020 interim report is due the day after the AGM, on April 24. The original dividend proposal, a one-time payment of 0.15 euros, is still valid.
Regarding Scanfil’s general meeting, it just occurred to me that a very competent-looking person has been proposed as a new member of the Board of Directors.
Indebtedness has once again fallen to a very low level. Perhaps now would be an opportune time for a slightly larger corporate acquisition, if the price is right.