SFC - Schaffer Corporation

[Joe Blow]

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

 

[tinhat]

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.

 

[peter2]

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.

 

[tinhat]

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!

 

[HelloU]

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?

 

[galumay]

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.

 

[galumay]

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.

 

[sptrawler]

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

 

[galumay]

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.

 

[sptrawler]

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.

 

[galumay]

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.

 

[tinhat]

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.

 

[galumay]

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!

 

[craft]

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

 

[peter2]

@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.

 

[galumay]

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.

 

[peter2]

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.

 

[galumay]

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.

 

[peter2]

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.

 

[Dona Ferentes]

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?