Scales could beat forecast profit

A surplus of Polish apples may dent Scales' short-term prospects. Photo by ODT.
A surplus of Polish apples may dent Scales' short-term prospects. Photo by ODT.
Scales Corp will provide updated guidance on its prospectus forecasts before December 31 after indicating it may beat earlier profit estimates.

The fruit and vegetable logistics company announced yesterday it would pay a 3c per share (cps) interim dividend.

According to its June prospectus, the Christchurch company expected annual profit of $15.9 million in 2014 and forecast a dividend of between 9.4cps and 9.6cps.

In announcing the interim dividend Scales managing director Andy Borland said the company remained on track to meet, if not slightly exceed, its 2014 forecast profit.

Debt was also lower than included in its offer documents, according to its statement.

Craigs Investment Partners broker Chris Timms said Scales was New Zealand's largest apple exporter, and also owned businesses across the primary sector including, sea and air freight services, cold store operations, and food ingredients, including pet foods and juice concentrate businesses.

The company lifted profit 50% to $20.4 million in calendar 2013, on the back of rising Asian demand for apples.

''We believe Scales provides an opportunity for clients to gain exposure to New Zealand's growing primary sector with a company that has a proven record and an attractive dividend yield.''

However, Mr Timms noted the risks of industry specific events such as hail or disease which might affect earnings.

Russia's ban on food imports from the United States and European Union also provided uncertainty over apple export prices in the short term.

Russia was the world's largest importer of apples with around half of its imports coming from Poland before the ban on trading with Russia was put in place, he said.

Surplus Polish apples had now flooded the European market, driving prices down.

''We see Scales' low valuation, high dividend yield and counter-cyclical supply providing near-term support,'' he said.

Mr Borland said the company was boosting its cold store network's capacity by 16%, with its new 8700sq m Polarcold plant at the Ports of Auckland inter-modal freight hub in South Auckland now unconditional and construction beginning.

Fonterra had already signed on to use half of the space, which was expected to be complete in the third quarter of next year.

The record date for the first-half dividend was December 9, with payment on December 19.

Shares of Scales last traded at $1.47, 8.1% below its July offer price of $1.60 per share.

Of the $148 million worth of shares sold, $30 million was new capital to be used to reduce debt, while private equity firm Direct Capital sold into the offer, reducing its stake to 20% from 84.2%.

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