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Australia | Manufacturing & Processing | Parts & Materials
Market capitalisation   AUD 194.4m
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Overview

SFC is a diversified asset management company that owns and operates a vertically integrated and multinational leather upholstery business, a precast concrete manufacturing business and a commercial property portfolio in Australia.

Business Lines

SFC derives most of its operating revenues from the sale of leather upholstery to vehicle manufacturers in Europe and Asia and the sale of building and landscaping materials in Australia. 71% of the AUD226.8 million it generated in the 2018 financial year came from leather upholstery sold in Europe, 19% from leather upholstery sold in Asia, 8% from building and landscaping materials sold in Australia and the rest came from other recurring sources.

SFC is a diversified asset management company that owns and operates a multinational leather upholstery business, a precast concrete manufacturing business and a commercial property portfolio in Australia. It owns:

  • 83% of Howe Automotive (www.howe.com.au), a vertically integrated and multinational leather upholstery business. Howe Automotive sources hide from international suppliers, primarily in South America, that it processes in its tanneries in Australia, Slovakia and China and sells directly to vehicle manufacturers in Europe and Asia;
  • Delta Corporation (www.deltacorp.com.au), which manufactures precast and pre-stressed concrete floors, beams and walling products for civil construction and commercial buildings in Western Australia; and
  • A portfolio of industrial properties, interests in several syndicated retail and commercial property portfolios and 83% of an Australian property management company called Gosh Capital.

Strategy, Risks and Opportunities

Product manufacturing is often characterised as competitive and susceptible to currency and commodity price movements, multinational competitors and the adoption of alternative technologies. Companies try to reduce these risks and maintain margins by investing in their own plant and equipment, by hedging part of their delivered raw material and energy costs and by continuously improving their production and supply chain efficiency. Specifically, SFC has indicated its near-term focus is to increase its leather upholstery production and reduce its corporate and processing costs across its building materials businesses [1]. 

SFC competes directly with other domestic and international manufacturers of automotive leather and building products that are also trying to attract customers through various pricing, quality and other customer propositions. Some of its larger competitors within the automotive industry are Eagle Ottawa and GST AutoLeather of the United States and some of its larger domestic competitors within the building materials sector are PERMAcast and Dallcon.

SFC has successfully established a multinational and vertically integrated business model with reliable channels-to-market across a diverse set of countries. It also operates in a range of industries and exports to a number of different countries, giving it the opportunity to allocate more of its resources to sectors with favourable demand drivers and to distribute more of its products to countries with favourable exchange rates. Going forward, it should continue to benefit from increased sales and economies of scale through organic growth, expanding its product range and geographic presence, optimising its operations and vertically integrating up the supply chain as well as undertaking complementary and value-accretive acquisitions. Its downside commercial risks could include: a broader economic slowdown, particularly within the automotive and construction sectors, that could affect the propensity of vehicle manufacturers to purchase its leather upholstery and construction companies to purchase its building and landscaping materials; erosion of market share and gross margins from multinational competitors and synthetic product manufacturers with greater economies of scale; loss of a key customer (two customers accounted for 41% of its revenues in the 2018 financial year), distributor, supplier or employee; changes to the availability, quality and delivered price of raw materials and third party supplier costs that are unhedged and cannot be passed on to customers through pricing increases; an appreciation of the AUD, which would lower the unhedged value of its exports and any foreign capital it chooses to expatriate back to Australia (equally, however, this could lower the AUD-equivalent cost of any manufacturing, packaging and distribution undertaken outside of Australia or raw materials imported into Australia); greater international product restrictions and regulations that may increase its compliance costs or prevent it from selling certain products in some markets; and any inheritance of undue liabilities or commercial risks through new product offerings, acquisitions and entrances into new markets.

History

2000: Calsil was established by George Schaffer, Mac Mitchell and Albert Jobling in 1955 as a producer of sand-lime bricks in Western Australia. It was first listed on the Perth Stock Exchange in 1963 and moved onto the Australian Stock Exchange in 1974 (CAL.AX), which facilitated its domestic growth and diversification. CAL acquired a competing sand quarry and brick producer called Colortone Holdings in 1966 and two more competing manufacturers called Besser and Hollowstone in 1973, it established a paving products manufacturer called UrbanStone in 1974, it acquired a manufacturer of pre-cast and pre-stressed concrete floors, beams and wall products called Delta Corporation in 1980 and it acquired a leather furniture manufacturer called Shilkin Leather that it renamed Gosh Leather in 1984.

George Schaffer died in 1988 and CAL was renamed Schaffer Corporation (SFC.AX) in honour of its founder. It sold most of its brick and paving assets to Boral before going through an extended period of domestic and international growth and diversification. By 2000 it had: moved its Gosh Leather operations under a new 49% owned leather upholstery business called Australian Leather Holdings that had commissioned tanneries in Australia and Mexico; acquired a complimentary Australian vehicle leather upholstery exporter called Howe & Company, which it moved under Australian Leather Holdings; acquired 50% of an Australian construction and landscaping materials business called Sydney Sandstone Quarries; established a portfolio of directly-owned and syndicated commercial and industrial properties across Western Australia; acquired an Australian funds management and investment company called Loftus Capital; and acquired 51% of an Australian manufacturer of solar hot water systems called Solco Industries, which included a 25% shareholding in Solco Zimbabwe and a 17% shareholding in Nell Solco Malaysia

2001: SFC sold 7% of Australian Leather Holdings

2002: SFC acquired a further 41% interest in Australian Leather Holdings, increasing its total shareholding to 83%. It also chose to exit Loftus Capital and its 50% interest in Sydney Sandstone Quarries

2003: SFC restructured its leather furniture business, Gosh Leather, on the back of increased competition from cheaper furniture imports into Australia

2005: SFC sold its 51% interest in Solco Industries, which it no longer considered a core part of its operations. During the the year, it also expanded vehicle leather upholstery production capacity by commissioning two new leather cutting facilities in China and Slovakia

2007: SFC continued to expand its domestic building and landscape materials operations by acquiring two of Western Australia’s largest producers of natural and reconstituted limestone block walling products, Limestone Resources and Archistone. During the year, it also closed its underperforming leather furniture operations, Gosh Leather, and renamed Australian Leather Holdings as Howe Automotive

2011: SFC chose to exit the American vehicle upholstery market and closed its leather cutting and tanning facility in Mexico after a period of reduced sales and margin pressure, driven in part by the global financial crises

2014: SFC established Gosh Capital, a property management and investment business with the aim of redeveloping the land on which Gosh Leather previously operated. SFC also amalgamated its Archistone and Limestone Resources businesses into UrbanStone

2016: SFC expanded its cutting facilities and commissioned a new leather finishing plant in Slovakia

2018: On the back of continued underperformance within its building materials division in Western Australia, SFC divested its Urbanstone business

Governance

SFC was first listed on the Australian Stock Exchange on 01 January 1974. It had 13.8 million shares on issue at the end of the 2018 financial year, 20% of which were owned by John Schaffer & Associates, 11% by Danielle Blain & Associates, 9% by Sterling Equity and the rest by a mix of approximately 1,300 retail and institutional investors.

The SFC Board collectively owned 5.3 million shares at the end of last year. The Board currently comprises:

  • John Schaffer has been the Managing Director since June 1987 and the Non-Independent Chairman since September 1988, after taking over the position from his late father, George Schaffer, who founded the business in 1955;
  • Anton Mayer has been a Non-Independent Director since November 2001. Anton is the Chairman of Howe Automotive, which is 83% owned by SFC;
  • Danielle Blain has been a Non-Independent Director since June 1987;
  • David Schwartz has been an Independent Director since June 1999. David also currently serves on the board of ADG Global Supply; and
  • Michael Perrott has been an Independent Director since February 2005. Michael is also a Director of GME Resources.

John Schaffer has been the SFC Managing Director since June 1987 and Non-Independent Chairman since September 1988. John comes from a manufacturing background and was initially appointed as Operations Manager of SFC in 1974.

References

Comparative Metrics

Summary Income Statement (AUDm)

FY17AFY18AFY19FFY20FFY21F
Revenue 215.0 226.8 229.1 230.6 238.7
Revenue growth 0.6% 5.5% 1.0% 0.6% 3.5%
EBITDA 22.8 44.4 42.8 37.9 33.9
EBITDA Margin 10.6% 19.6% 18.7% 16.4% 14.2%
NPAT normalised 9.1 22.5 24.3 21.7 19.8
NPAT reported 5.9 23.3 24.3 21.7 19.8
EPS normalised 64.6 161.2 175.8 156.7 143.0
EPS growth 70.4% >100.0% 9.1% -10.9% -8.7%

Summary Balance Sheet (AUDm)

FY17AFY18AFY19FFY20FFY21F
Total assets 185.0 195.2 201.0 203.0 215.5
Net debt 43.8 7.3 -9.4 -26.5 -33.6
Total liabilities 110.6 104.4 93.6 82.9 89.1
Shareholders' equity 74.4 90.9 107.4 120.1 126.4
ROCE 11.5% 23.8% 22.1% 19.2% 15.9%
WC to revenue 29.8% 24.5% 26.3% 26.3% 25.6%
Net debt to capital 37.1% 7.4% -9.5% -28.2% -36.2%
Interest cover 8.0 23.8 >25.0 >25.0 >25.0

Summary Cashflow Statement (AUDm)

FY17AFY18AFY19FFY20FFY21F
Operating free cashflow 22.3 45.3 29.6 30.9 28.3
Capital expenditure 4.3 6.1 5.2 4.8 7.7
Distributable cashflow 17.8 44.1 24.4 26.1 20.6
Post-tax DPS declared 26.0 45.0 55.0 65.0 97.5
Franking 100.0% 100.0% 100.0% 100.0% 100.0%
Payout 40.2% 27.7% 31.3% 41.5% 68.2%
Dividend cover 5.0 5.5 3.3 2.9 1.7

Summary Discounted Cashflow Valuation (AUDm)

Financial year end30-JunShares on issue13.8
WACC8.8%TV/DCF51.4%
Explicit value250.5Terminal value128.8
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Topic Last Post
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1m
Shareclarity has revised the Schaffer Corporation Limited DCF Valuation up 0% to AUD17.27. The share price is currently AUD14.70 and the value gap is 17.5%.Shareclarity take: "SFC is expecting a similar half year result to last year, in line with forecast. It has signalled that leading car manufacturers are seeing a slowdown in sales in FY19, impacting SFC"
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Shareclarity has revised the Schaffer Corporation Limited DCF Valuation up 0% to AUD17.24. The share price is currently AUD16.24 and the value gap is 6.2%.Shareclarity take: "SFC has released its full financials, allowing for better clarity on its FY18 result. It is currently expected that Schaffer will achieve a similar FY19 earnings result to the year just been"
  2
4m
Shareclarity has revised the Schaffer Corporation Limited DCF Valuation up 20% to AUD17.47. The share price is currently AUD16.95 and the value gap is 3.1%.Shareclarity take: "SFC's EBITDA margin expanded from 10.6% to 19.7% in the financial year 2018, slightly higher than forecast. With further efficiencies expected at its Slovakian plant, the valuation has been lifted"
  0
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The Schaffer Corporation share price has increased 13.0% today, compared to -0.5% by the other 30 Manufacturing & Processing (Parts & Materials) companies on Shareclarity.Shareclarity will review all publicly available information and update the DCF valuation accordingly.
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Shareclarity has revised the Schaffer Corporation Limited DCF Valuation.Click here to view this change.
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Shareclarity has revised the Schaffer Corporation Limited DCF Valuation.Click here to view this change.
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Shareclarity has revised the Schaffer Corporation Limited DCF Valuation up 0% to AUD14.50. The share price is currently AUD12.90 and the value gap is 12.4%.Click here to view this change.
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Shareclarity has revised the Schaffer Corporation Limited DCF Valuation.Click here to view this change.
  0
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Shareclarity has revised the Schaffer Corporation Limited DCF Valuation.Click here to view this change.
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Shareclarity has revised the Schaffer Corporation Limited DCF Valuation , which has remained at AUD14.47. The value gap is now 14.1%.Click here to view this change.
  0
9m
Shareclarity has revised the Schaffer Corporation Limited DCF Valuation down 2% to AUD14.47. The share price is currently AUD12.90 and the value gap is 12.2%.Click here to view this change.
  0
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Shareclarity has revised the Schaffer Corporation Limited DCF Valuation up 6% to AUD13.68. The share price is currently AUD11.83 and the value gap is 15.6%.Click here to view this change.
  0
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Shareclarity has revised the Schaffer Corporation Limited DCF Valuation, up 0%.Click here to view this change.
  0
1y
This change to SFC.AX was successful Shareclarity2 proposed a change to SFC.AX, + Europe leather product trading revenues at 2017-11-16 00:41:41(UTC). It was implemented by Shareclarity. Shareclarity will on occasion propose and/or implement changes to economic indicators, company overviews and implied valuations. Such changes are kept to a minimum and are most often used to ensure the information in this site is relevant and current. The Shareclarity Team
  0
1y
This change to SFC.AX was successful Shareclarity2 proposed a change to SFC.AX, +/- Change in value of fixed and intangible assets at 2017-10-24 00:14:42(UTC). It was implemented by Shareclarity. Shareclarity will on occasion propose and/or implement changes to economic indicators, company overviews and implied valuations. Such changes are kept to a minimum and are most often used to ensure the information in this site is relevant and current. The Shareclarity Team
  0
1y
This change to SFC.AX was successful Shareclarity2 proposed a change to SFC.AX, + Europe leather product trading revenues at 2017-09-19 04:28:03(UTC). It was implemented by Shareclarity. Shareclarity will on occasion propose and/or implement changes to economic indicators, company overviews and implied valuations. Such changes are kept to a minimum and are most often used to ensure the information in this site is relevant and current. The Shareclarity Team
  0
1y
This change to SFC.AX was successful Shareclarity2 proposed a change to SFC.AX, Declared post-tax dividend per share at 2017-09-05 03:52:38(UTC). It was implemented by Shareclarity. Shareclarity will on occasion propose and/or implement changes to economic indicators, company overviews and implied valuations. Such changes are kept to a minimum and are most often used to ensure the information in this site is relevant and current. The Shareclarity Team
  0
1y
This change to SFC.AX was successful Shareclarity3 proposed a change to SFC.AX, - Distributions already paid at 2017-08-30 19:25:16(UTC). It was implemented by Shareclarity. Shareclarity will on occasion propose and/or implement changes to economic indicators, company overviews and implied valuations. Such changes are kept to a minimum and are most often used to ensure the information in this site is relevant and current. The Shareclarity Team
  0
1y
This change to SFC.AX was successful Shareclarity2 proposed a change to SFC.AX, - Distributions already paid at 2017-08-30 05:12:57(UTC). It was implemented by Shareclarity. Shareclarity will on occasion propose and/or implement changes to economic indicators, company overviews and implied valuations. Such changes are kept to a minimum and are most often used to ensure the information in this site is relevant and current. The Shareclarity Team
  0
1y
This change to SFC.AX was successful Shareclarity1 proposed a change to SFC.AX, * Average operating costs as a proportion of leather products sector revenues at 2017-08-16 05:54:05(UTC). It was implemented by Shareclarity. Shareclarity will on occasion propose and/or implement changes to economic indicators, company overviews and implied valuations. Such changes are kept to a minimum and are most often used to ensure the information in this site is relevant and current. The Shareclarity Team