Scales Corporation Limited

Company Overview:

Scales Corporation Limited (NZX: SCL) is a diversified agribusiness portfolio. It comprises 3 operating divisions: Horticulture, Storage & Logistics and Food Ingredients. Delegat Group Limited (NZX: DGL) is a New Zealand-based wine company. The company invests in wineries and vineyards in the prime grape- growing regions of Australia and New Zealand .

Kalkine’s Sector Report covers the Key Financial Metrics, Risks, Outlook, Technical Analysis along with the Valuation, Target Price, and Recommendation on the stock.

1. Sector Landscape and Outlook

The export prices rose more than import prices in the December 2024 quarter, resulting in a 3.1% increase in the terms of trade, as per Stats NZ. The total export price index witnessed a rise of 3.2% and the import price index increased 0.1% in the December 2024 quarter as compared with the September 2024 quarter. The export prices for meat products, which are NZ’s second largest export commodity by value, increased 6.8% in the December quarter. Notably, lamb prices increased 7.0%, while beef and veal prices increased 6.1%.

The prices for dairy products (NZ’s top export commodity) increased 3.5%, with milk powder up 3.5% and butter up 3.0%. Overall, the import prices increased 0.1% in the December 2024 quarter, with falling prices for petroleum and petroleum products (down 9.5%), offset by higher prices in other categories.

Exhibit 1: Dairy Product Export Price Indexes, March 2024–December 2024 Quarters

Data Source: This work is based on/includes Stats NZ’s data which are licensed by Stats NZ for reuse under the Creative Commons Attribution 4.0 International Licence; Chart Created by Kalkine Group

Growth in Agriculture Exports Narrowed Goods Trade Deficit

The trade balance for the January 2025 month was a deficit of $486 Mn, as per Stats NZ. In January 2024 month, the deficit stood at $1.1 Bn. The total exports amounted to $6.2 Bn in January 2025, an increase of $1.4 Bn as compared to January 2024. Notably, imports were valued at $6.7 Bn, an increase of $787 Mn over the same period. The narrowing of the deficit in January 2025 as compared with the same month last year was because of agricultural commodity exports.

Notably, the leader in the increase in exports this month were milk powder, butter, and cheese (rising $787 Mn), and meat (up $178 Mn). The milk powder, butter, and cheese exports amounted to $2.55 Bn in the January 2025 month, its highest monthly value on record. This rise was because of milk powder (up $339 Mn), milk fats including butter (up $243 Mn), and cheese (up $115 Mn).

Exhibit 2: Merchandise Trade Balance ($ Bn), January months, 2021–2025

Data Source: This work is based on/includes Stats NZ’s data which are licensed by Stats NZ for reuse under the Creative Commons Attribution 4.0 International Licence; Chart Created by Kalkine Group

Higher Retail Activity In December 2024 Quarter

The total volume of retail sales in NZ witnessed a rise of 0.9% in the December 2024 quarter as compared with the September 2024 quarter, as per Stats NZ. In the December quarter, there was a modest increase in retail activity, with growth throughout most of the industries. The critical contributors to the increase in retail activity during the December 2024 quarter were electrical and electronic goods retailing (up 5.1%), accommodation (up 7.6%), department stores (up 4.2%), and food and beverage services (up 2.3%).

The sales in the South Island rose 3.5% ($251 Mn) to $7.4 Bn, while sales in the North Island rose by 1.3% ($292 Mn) to $22.4 Bn.

Key Risks and Challenges:

The broader consumer staples sector is exposed to risks such as disruptions to production as well as shipping of commodities, macro-economic uncertainties, fluctuating consumer spending patters, etc. As per RBNZ, the global economic growth is projected to remain subdued over the near term. Geopolitics, such as uncertainty related to trade barriers, might weaken global growth.

Exhibit 3. Key Risks in Consumer Staples Sector:

Source: Analysis by Kalkine Group

Outlook:

As per SOPI December 2024, wine export revenue is expected to recover from a challenging 2023/24, due to the robust consumer demand for NZ wine. The apple and pear export revenue is expected to exceed $1.0 Bn, spurred by recovering export volumes after the cyclone-affected 2023 season. Notably, the fresh and processed vegetable export revenue is also anticipated to recover, increasing by 7%. NZ wine sales are growing in critical markets despite challenges like constrained disposable income as well as changing consumer preferences.

Unlike NZ wine, consumer sales for most other countries’ wine declined in NZ’s key markets. This robust underlying consumer demand for NZ wine is projected to support export revenue. Also, horticulture export revenue is expected to increase by 12% to $8.0 Bn in the year ended 30 June 2025. This growth was mainly aided by the kiwifruit industry, attributed to a record 2024 crop as well as increased production volumes of gold kiwifruit in the 2025 season.

Apart from the sector-specific factors, an analysis on 2 NZX-listed companies is provided. This report covers their insights, outlook, performance and potential as expected to be delivered in the near to medium term.

1) Scales Corporation Limited (Recommendation: Hold, Potential Upside: Low Double-Digit) (M-Cap: NZD 595.8 Mn, Annual Dividend Yield: 3.85%)

Business Description:

Scales Corporation Limited (NZX: SCL) is a diversified agribusiness portfolio. It comprises 3 operating divisions: Horticulture, Storage & Logistics and Food Ingredients.

Outlook:

SCL has a robust financial position, with net cash of $12.5 Mn as at 31 December 2024. The continuation of FY 2024’s strong financial performance is expected within Global Proteins. The division has been making progress opportunities and projects, and these are anticipated to contribute positively in future years.

Technical Overview:

SCL Daily Technical Chart, Data Source: REFINITIV

Technical Commentary

On the daily chart, SCL’s stock prices are forming a trading range characterized by lower highs and higher lows, suggesting that the sideways period in the stock might continue to persist in the near future. Moreover, the momentum oscillator RSI (14-period) is fluctuating around its midpoint, adding further evidence for the mentioned recommendation. Prices are trading between its previous peak and trough, which might function as resistance and support levels for the stock, respectively. A significant support level for the stock is positioned at NZD 3.98, while critical resistance level is located at NZD 4.37.

Fundamental Valuation

P/E Based Valuation

Stock Recommendation

Considering the facts above, a ‘Hold’ recommendation on the stock has been provided at the closing market price of NZD 4.15 per share, down by 0.24% on March 6, 2025.

2) Delegat Group Limited (Recommendation: Buy, Potential Upside: Low Double-Digit) (M-Cap: NZD 475.3 Mn, Annual Dividend Yield: 5.91%)

Business Description:

Delegat Group Limited (NZX: DGL) is a New Zealand-based wine company. 

Outlook:

DGL is well-placed to fund its current operations as well as future capital investment in both NZ and Australia. The company’s net debt at 31 December 2024 amounted to $345.6 Mn, a decrease of $6.7 Mn as compared with the last half-year as well as within its bank debt facilities of $420 Mn. It is expecting its FY 2025 Operating Net Profit After Tax to be at the lower end of the range of $55.0 Mn - $60.0 Mn.

Technical Overview:

Technical Commentary

On the daily chart, DGL’s stock prices are forming a trading range characterized by lower highs and higher lows, suggesting that the sideways period in the stock might continue to persist in the near future. Moreover, the momentum oscillator RSI (14-period) is fluctuating around its midpoint, adding further evidence for the mentioned recommendation. Prices are trading between its previous peak and trough, which might function as resistance and support levels for the stock, respectively. A significant support level for the stock is positioned at NZD 4.45, while critical resistance level is located at NZD 5.03.

DGL Daily Technical Chart, Data Source: REFINITIV

Fundamental Valuation

P/E Based Relative Valuation

Stock Recommendation

Considering the facts above, a ‘Buy’ recommendation on the stock has been provided at the closing market price of NZD 4.70 per share as on March 6, 2025.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is March 6, 2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4:  Annual Dividend Yield is on a Trailing Twelve Month (TTM¹) basis and are subject to change based on factors such as company performance, stock price changes, etc.

Note 5: Kalkine reports are prepared based on the stock prices captured either from REFINITIV or Trading View. Typically, REFINITIV or Trading View may reflect stock prices with a delay which could be a lag of 25-30 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.