On the 12th of September Scales shares (NZX:SCL) were worth $4.92, but I stated that SCL are worth $4.60. They are now trading at $4.59 at the time of writing this. It seems that the market is operating under the same assumptions that I made with my September valuation.
That’s good because we can apply those same assumptions to upcoming results to find out what they are likely worth and if it’s worth buying at these prices.
I originally arrived at $4.60 based on the fact that under typical conditions they’d be worth $5.00, but needed to be worth less than that to offer 8% ROI as they were having a bad year due to COVID related issues.
Unfortunately it looks to me like those COVID related issues (namely getting fruit pickers from abroad) are still present. Looking at the dates that apples need picked, it would be sensible to assume that this issue will not be resolved in time for the season, and that we can assume disappointment in the next results announcement.
In addition to this, the measures (opportunities) resulting from this (namely pruning orchards and developing premium varieties) may mean that Scales won’t be up to capacity until 2022 (albeit a higher capacity than former years).
It could be argued that Scales will probably be worth between $4.60 and $5.00 next year, which means that currently they are worth between $4.25 (offering an 8% ROI on a price of $4.60 next year) or $4.60 (offering an 8% ROI on a price of $5.00 next year). I think this is supported by the trading range over the past month (which is a low of $4.26 to a high of $4.65).
Unfortunately I don’t think it’s as simple as the market would have it. There are a number of variables to add to this and to throw a spanner in the works, Scales are currently in the process of making an offer for a winery business, which I will likely discuss in my next article…