# SFC - Schaffer Corporation



## Joe Blow (11 June 2010)

Schaffer Corporation Limited (SFC) is a diversified industrial company whose core operating divisions are Building Products and Automotive Leather. The Company also holds an investment property portfolio.

http://www.schaffer.com.au


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## tinhat (26 February 2013)

I just had a bit of a look into this company. Another one of those weird small-cap diversified industrials. They have a leather business that makes leather interiors for cars, a masonry business (both manufactured masonry and natural limestone products), a prefabricated concrete panels for construction (which would have some synergies with the manufactured masonry I would imagine) and a small portfolio of commercial properties in Perth and Melbourne.

How does a conglomerate like this eventuate? Are the original business owners all members of the same golf club?

The price has had a good run up but the building industry businesses have been boosted by the mining construction boom and the general building boom in WA. How sustainable is that? Their guidance is that the automotive leather business will pick up in the second half.

The dividend yield has come down due to the run up in price. 4.86% before franking credits - so might be a stock to put on the watch list. Another one of those small caps where NTA exceeds share price.

They are paying down debt and seem to be concentrating on that while maintaining a modest dividend payout ratio of less than 30%. Assuming the business continues to do well there may be some scope for the payout ratio to rise substantially.


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## peter2 (9 September 2018)

SFC is one of many companies with stellar price trends that sneak through unmentioned. This is a monthly chart showing almost +300% price rise over the last 18mths. They don't get on my radar because the daily, weekly volume traded is too small.


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## tinhat (10 September 2018)

peter2 said:


> SFC is one of many companies with stellar price trends that sneak through unmentioned. This is a monthly chart showing almost +300% price rise over the last 18mths. They don't get on my radar because the daily, weekly volume traded is too small.
> View attachment 89235




It's funny you posted that chart. I came across an old watch list on the weekend and checked out the chart. Another one that got away!


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## HelloU (11 September 2018)

I would not beat myself up too badly about that - even with 20/20. With such small parcels, low liquidity and secret squirrel operations it is not too difficult to miss it and many like it ......... what I mean by that is are you going to buy it this week?  Long term trend says yes for the future, but are you a buyer today?


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## galumay (6 July 2019)

An interesting little business I have been accumulating for a while now, extremely illiquid, but I have managed to build a decent position with patience and a close eye! I think its significantly undervalued and for the price of the leather business you are getting a $100m property portfolio and the other bits of the business for nothing. Furthermore there is significant locked up potential in the property portfolio as the main asset has moved to the stage where development of the site is likely in the next few years.


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## galumay (21 August 2019)

SFC released their AR this week and while revenue was down a bit in the leather sector, cost reductions meant the drop in profit was smaller. The share price dropped back about 10% and I took the opportunity to build my position a bit more, I continue to see the leather business alone as justifying the current price with the significant property portfolio and the small concrete cladding business for nothing.


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## sptrawler (21 August 2019)

Interesting little company galumay, precast concrete will be a big earner with any infrastructure stimulus spending.

https://www.asx.com.au/asxpdf/20190820/pdf/447n10xhj7bg35.pdf


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## galumay (21 August 2019)

sptrawler said:


> Interesting little company galumay




Indeed, I suspect the lack of liquidity would put many off, but I love finding these little businesses, its been around for decades, has an improbably mix of businesses, quite a story of how they got where they are, a business one would really expect to be a private company. I love the locked up assets that have the potential to gush cash for the owners.


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## sptrawler (21 August 2019)

galumay said:


> Indeed, I suspect the lack of liquidity would put many off, but I love finding these little businesses, its been around for decades, has an improbably mix of businesses, quite a story of how they got where they are, a business one would really expect to be a private company. I love the locked up assets that have the potential to gush cash for the owners.



Yes they would slip under most investors radar, the precast concrete is it Australia wide, or W.A specific?
Their property portfolio is very diverse also, like you mentioned the lack of liquidity and scale could find them in trouble with say a major contract going pear shaped.
Having said that, they certainly have a strong asset base.
Must do more reading on them.


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## galumay (21 August 2019)

Its WA specific, its a tiny part of the business and very cyclical, but its part of the Schaffer family story. The property is worth very conservatively, about $100m. I have talked quite a bit with management and they are very confident with the core automotive leather business, they really understand the market and where they fit in it, they supply some of the big luxury brands and they know how to become accredited suppliers to them.


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## tinhat (22 August 2019)

galumay said:


> Its WA specific, its a tiny part of the business and very cyclical, but its part of the Schaffer family story. The property is worth very conservatively, about $100m. I have talked quite a bit with management and they are very confident with the core automotive leather business, they really understand the market and where they fit in it, they supply some of the big luxury brands and they know how to become accredited suppliers to them.




It's always good to see someone do the legwork in researching a company. I think you have to with these little gems because the lack of liquidity means you are likely strapped in for the long run.


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## galumay (22 August 2019)

tinhat said:


> It's always good to see someone do the legwork in researching a company. I think you have to with these little gems because the lack of liquidity means you are likely strapped in for the long run.




Thanks mate, its certainly part of my defined strategy. I am a believer that if I want above average returns I have to do something different to the average. Poking around in tightly held, illiquid microcaps certainly gets me doing something different! The nature of that subset of the investible world does mean I have to do a deeper level of research and analysis than if I were just picking large cap, stable, mature businesses to invest in.

It also doesnt suit everyone because its pretty time intensive, I am lucky enough to have structured things so that my company doesnt take a lot of my time and I can devote significant resources to analysis and research - and I enjoy it too!


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## craft (28 August 2019)

galumay said:


> I am a believer that if I want above average returns I have to do something different to the average. Poking around in tightly held, illiquid microcaps certainly gets me doing something different! The nature of that subset of the investible world does mean I have to do a deeper level of research and analysis than if I were just picking large cap, stable, mature businesses to invest in.
> 
> It also doesnt suit everyone because its pretty time intensive, I am lucky enough to have structured things so that my company doesnt take a lot of my time and I can devote significant resources to analysis and research - and I enjoy it too!




Nice to see you still here and still on this path. Also thanks (ongoing) for the thoughts you post on lots of these smaller companies

Cheers


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## peter2 (28 August 2019)

@galumay  I agree with craft and thank you for posting comments on companies that I do not see let alone trade. The companies that you specialise in don't appear in my scans due to the low daily traded volume. Seems you've found your niche and it's working out well. 

Please continue posting your thoughts in these companies after significant reports. I like seeing other trading/investing styles progress in real time. I won't disrespect you with anything less than a 10yr, monthly chart of SFC.


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## galumay (28 August 2019)

Hey Peter2 - Respect! You are the first trader to post a chart that i might look at - 10 years is getting closer to my timescale!!

I suspect that finding a niche or strategy and learning it, practising it, reflecting on it and sticking to it, maybe more important than which one you choose. I suspect your expertise in your chosen style has come about in a similar way.


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## peter2 (29 January 2020)

A personal update on SFC. Holding in a conservative low activity portfolio. Exit stop has been raised to break-even. The initial target is 17.30, the prior swing high. 

Next news will be 14 Feb 20.


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## galumay (29 January 2020)

Hey Peter2, looks like it has been quietly dragged up by the raising market. Would have liked to build a bit larger position but until will keep the powder for another day.


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## peter2 (29 January 2020)

Yeah totally overpriced now.   The current bullish sentiment regarding SFC is most likely due to the bullish market sentiment. It may also be due to the lack of supply. I've noticed at times there's been no asks on the market depth. I'll sell half of mine at 17.30 when price nears there. Save your change.


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## Dona Ferentes (29 January 2020)

I remember this one as a 'top performer' at the beginning of the century (though the company works in bespoke leather, I mean the 21st), on the now-defunct SharesGuru. Funny how some things stay the same, because reading about it, words such as _"tightly held, niche, thinly traded, hard to accumulate a position_" come to mind from back then.
_
Galumay, _if you want to talk long-term, I pulled up a chart from 1990. Why, there it was bouncing along going nowhere, but by 2000 was $2, then in 2002 up to $4 and by 2004 hit $15. And it has only just got back to that level (corporate actions not taken into account) after a pronounced fall from grace. While history doesn't repeat, it may be interesting to figure out what happened in 2005. Small free float can be double edged. Yes, earnings have nearly tripled in the last three years, but is this sustainable?

If bad news emerges (debt?) who will be the buyer?


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## galumay (29 January 2020)

I dont think there is any chance of debt! Its got a very healthy balance sheet, the sleeper is the huge property portfolio, which is edging closer to having the value unlocked. Its carried on the books at about $100m, if it gets developed as now seems likely that number will be much bigger.

If you read back through the history of the company its now a very different animal and the way the founder/management team have managed that turnaround is enlightening. 

Of course, black swan events are always possible, and yes small free float means liquidity is low, but my style and process means I am often invested in very illiquid, tightly held businesses.


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## galumay (29 January 2020)

peter2 said:


> I'll sell half of mine at 17.30 when price nears there. Save your change.




I will keep my eyes out for them!


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## galumay (14 February 2020)

Well SFC busted thru $17 with its HF report today. I will need to look out for peter2's stake if it keeps going north! Nothing really surprising in the HY, I suspect there is simply increasing interest in the investment assets of SFC.

(i have only skimmed thru the results so far.)


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## peter2 (2 June 2020)

@galumay  I didn't forget this one. 
Bought some at 11 and 10.50 and think I'll just hold on to them for a while.


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## galumay (3 June 2020)

LOL! I am still keeping an eye out for when you sell half! I think you got in very cheap, if you are patient the value locked up in the land assets will reward you well!


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## Dona Ferentes (3 June 2020)

peter2 said:


> @galumay  I didn't forget this one.



when @galumay  posted about EMB, this is the one I thought of!!


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## peter2 (3 June 2020)

galumay said:


> if you are patient




This is the important attribute of a long term investor that I'm not so good with. Didn't place the sell order at 17.30, then didn't get another chance due to the "corona" selloff of 2020. I hate holding something that loses 40% of it's value. In this case I was unable to sell as the available volumes were too low with only a few hundred shares on the bid most of the time. 

Price is finally leaping higher, on low volume, as usual. If price gets back to 17, well, there's no point selling as it may go higher.


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## galumay (3 June 2020)

I somehow suspect you are not cut out to be a long term investor, @peter2 !! 

I imagine it would be like me trying to short term trade! (A disaster.)


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## galumay (19 August 2020)

SFC's FY results out today, good result in the circumstances, COVID has had a negative impact on the auto leather business, but what money they made they invested in the share market and did well there! Its almost like a family office this company, between the operating business, share portfolio and property assets its an all weather business.


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## Clansman (19 August 2020)

galumay said:


> SFC's FY results out today, good result in the circumstances, COVID has had a negative impact on the auto leather business, but what money they made they invested in the share market and did well there! Its almost like a family office this company, between the operating business, share portfolio and property assets its an all weather business.




Let us take an educated guess. You need it to go up another $3 to break even so you've decided it's "a good result in the circumstances"? 
Objectively it's actually another illiquid lobster pot.


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## galumay (19 August 2020)

Having had a more detailed read of the AR its a good picture of the skill and acumen of management in this business, given the serious impact of COVID on the leather business the fact they were able to increase profit substantially and increase the dividend by 15% while still paying out less than 50%, shows how they were nimble in controlling costs which dropped quite a bit, and also creating opportunity in the investment portfolio. 

The real sleeper continues to be the land bank, when they unlock that value it will be a big impact on the value of the business. As it stands the investments in shares and property is basically equal to the market cap of the business so you get the rest for nothing.

Of course the illiquidity would put off many investors, but its an attraction for me as a long term, value focussed, micro cap investor.


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## Clansman (19 August 2020)

galumay said:


> Having had a more detailed read of the AR its a good picture of the skill and acumen of management in this business, given the serious impact of COVID on the leather business the fact they were able to increase profit substantially and increase the dividend by 15% while still paying out less than 50%, shows how they were nimble in controlling costs which dropped quite a bit, and also creating opportunity in the investment portfolio.
> 
> The real sleeper continues to be the land bank, when they unlock that value it will be a big impact on the value of the business. As it stands the investments in shares and property is basically equal to the market cap of the business so you get the rest for nothing.
> 
> Of course the illiquidity would put off many investors, but its an attraction for me as a long term, value focussed, micro cap investor.




Even if it's lost $3 in value since you bought it....?
If never getting out is your goal, then you would be better served buying shares in the Hotel California. By the way that "land bank that is the real sleeper" is the same land bank it had + $3 ago.


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## barney (20 August 2020)

Unusual for a $200 mill Co to have no sellers


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## galumay (21 August 2020)

@barney there is not much free float though, very tightly held by the top 20.


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## peter2 (6 December 2020)

Can't let this new all time high go without recognition. Now where did I put that 10 year chart? Heck, lets look at the 20 yr monthly chart.


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## galumay (6 December 2020)

Have you still got a few, Peter? I was surprised to see it has hit $18, been a good addition to my portfolio!


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## peter2 (6 December 2020)

Is anyone surprised to see that even in low volume traded stocks like SFC, that the behaviour of the participants (buyers/sellers) as a group are the same as seen in high volume stocks.

I noticed in the monthly chart of SFC posted above that both pull-backs or retracements in the last two rallies touched and reversed in the 50 - 62% pull back zones of the prior move up.






Yes I've still go the few that I started with. Didn't sell before the covid selloff, but also didn't buy more in the Covid dip. I did look at the time but there was only a few hundred offered.

_Projections_: Not that it really matters to long term investors like us ().  Price looks likely to get to $20 soon and then crawl it's way higher to $24-25 where it may find some resistance.

It wouldn't surprise me if the family did something with the real estate. They aren't going to live forever and I'm unaware if the property will stay with the family or the business.


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## peter2 (6 December 2020)

SFC seems to have been very lucky with an investment in SM8. Their 2.4M investment has turned into 16M. 
SM8 has morphed into HFG.  I'm intrigued by their investment in a completely different area (monitoring buoys, marine tech for energy, resource sector). There must be a story there.


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## Dona Ferentes (6 December 2020)

peter2 said:


> SFC seems to have been very lucky with an investment in SM8. Their 2.4M investment has turned into 16M.
> SM8 has morphed into HFG.  There must be a story there.



or HTG ... 




__





						HTG - Harvest Technology Group
					

Shark Mitigation Systems is a company that was incorporated in Western Australia to research and commercialise technologies that mitigate the increasing occurrence of shark attacks globally.   SMS, in collaboration with the University of Western Australia’s Oceans Institute and School of Animal...




					www.aussiestockforums.com


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## galumay (6 December 2020)

peter2 said:


> There must be a story there.




Indeed. I spoke to management about the business investments and questioned the wisdom of using retained earnings for rather small investments in odd little totally unrelated businesses. They basically blew me off and said they were very comfortable with where they were investing and if i didn't like it I probably should reconsider being a shareholder! 

Their confidence seems rewarded given the revaluation of their equity portfolio! 

I think of them as my LIC, REIT that makes leather seats and concrete plinths.


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## barney (6 December 2020)

galumay said:


> @barney there is not much free float though, very tightly held by the top 20.




Haven't followed this since my last post back in late August, but the lack of Sellers back then has seemed to morph into a continual rise higher.

I have no idea on the Stock but well done to you guys who understand and have made a few bob out of it.

I find it amazing that a Stock worth so much is so thinly traded


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## galumay (6 December 2020)

barney said:


> I find it amazing that a Stock worth so much is so thinly traded




There is really no reason for any correlation between the price of a share and how much it trades. Not many shares issued,  Its not got a lot of free float so that reduces the interest, its not got any institutional holders, there is no broker coverage and its not something that traders would normally look at so there is no noise about it from the HC rampers & pumpers. 

Its also not a sexy business, no SaaS here, no tech, no inspiring narrative - just a funky mixture of a REIT/LIC and a leather seat maker with a concrete casting business hanging off the side of it!


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## galumay (17 February 2021)

SFC H1 report out today, slightly beating guidance and a strong start to the FY. Market liked it pushing them to ATH of $20 up nearly 10%.


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## galumay (18 August 2021)

A very good year for SFC, my little WA car-seat/concrete-gnome/REIT/LIC.


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## galumay (23 February 2022)

What a difference 6 months makes!

Crap H1 2022 for my little illiquid WA car-seat/concrete-gnome/REIT/LIC, $SFC - the leather business heavily impacted by chip shortages and supply chain issues and LIC crushed by the fall in the SP of their main #shitco.







GROUP INVESTMENTS.


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## divs4ever (23 February 2022)

i wouldn't go as far as say 'crap ' , unexciting  , i could agree with that 

 i glance at this from time to time but haven't bought in  .. yet 

 DYOR

 ( being illiquid  isn't a total turn-off for me )


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## galumay (23 February 2022)

I think crap is fair, not a reflection on the business, just on the circumstances of the half year. I suspect management would agree with me!


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## InsvestoBoy (23 February 2022)

galumay said:


> What a difference 6 months makes!
> 
> Crap H1 2022 for my little illiquid WA car-seat/concrete-gnome/REIT/LIC, $SFC - the leather business heavily impacted by chip shortages and supply chain issues and LIC crushed by the fall in the SP of their main #shitco.
> 
> ...




Please explain "concrete-gnome" lol especially hyphenated.


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## galumay (23 February 2022)

They also have a little concrete casting business.


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## divs4ever (23 February 2022)

i threw a bid in today  but the price wandered away from the target  so cancelled the order , maybe another day


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## finicky (23 February 2022)

Would be on my crash hot list but I'm not into leather (really)


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## galumay (24 August 2022)

Interesting FY2022 AR from my little car seat/concrete gnomes/REIT/LIC, SFC out this morning. They have weathered the impacts on the business fairly well I believe. The accounting changes to value the property holdings at fair value will take me a bit of time to digest. The biggest single impact on income was the $32m turnaround in "Net (loss)/gain on other financial assets at fair value through profit or loss - non-current". This impacted profit by about $16m after allowing for a similar "Net gain on investment property at fair value". Might have to ask them for a bit more detail around what these non current financial assets are. The non-current bit is what I cant quite identify.

I emailed them and Jason replied explaining its simply the bag of equity and property syndicates they intend holding longer than 12 months. The impact on these valuations on earnings is really largely irrelevant anyway, my focus is on the cash in this sort of situation.

Looking through the shareholder presso, (i usually only read the actual annual report), its obvious that the holding in HTG is the main culprit.


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