Sdi Share Discussion Threads

[sweetunicorn] 20/7/2021 16:19

Thank you, Martin. As always, very worth reading and I always look forward to reading something new from you about SDI!

[hastings] 20/7/2021 16:11

Nothing earth shattering or revealing, but hopefully of interest.https://martinflitton1.wixsite.com/privatepunter/post/sdi-group-excellent-full-year-numbers-20-07-21

[trident5] 20/7/2021 10:40

Rivaldo - I hadn't looked at the Borrowings note, but in my defence the balance sheet classifies those lease debts as borrowings.

I would classify payment of taxes as very much part of operating activity.

The market seems happy, anyway.

[steeplejack] 20/7/2021 10:12

Striking a balance sheet date is rather like having an MOT.A useful exercise but one with a limited time value.The market might be a weighing machine and all that guff but frankly it's a generalist rather than a specialist with analysts strutting their stuff alongside chartists ,algorithmic trading and manipulative proprietary books.At the end of the day,I see this company operating in a good growth,high margin area,generating cash flow and trading on a pretty undemanding rating.Perhaps I'm becoming overly simplistic in my old age.

[rivaldo] 20/7/2021 09:48

Cash is £3.8m less £3.1m borrowings, rounding to £0.8m net cash. If you look at the Notes the borrowing figures trident5 quotes include lease finance - so the correct figure for bank borrowings is £3.1m as SDI say.

Similarly the increase in trade payables year on year is only to £3.4m from £1.4m last year - nowhere near the £6m quoted above by trident5, which presumably includes the Monument deferred consideration etc. Trade debtors actually increased to £6.7m from £3.6m - a bigger increase than trade payables.

The cash flow figures are entirely consistent - the cash flow generated from operations was £11.7m per the cash flow statement, and the cash generated from operating activities after interest and tax was £10.3m.

It's always worth people doing just a little digging before simply posting headline numbers.

[ymaheru] 20/7/2021 09:29

Below what I was hoping.
FCF flattered by one off downpayments.

Present value if future cash flow shows no real discount; a bit worrying in this shaky market.

Very good company, but I’m certainly not adding shares at these prices.

[trident5] 20/7/2021 09:26

The trouble with FCF is that it can largely be a function of short term working capital movements. It's up a lot this year just because there is a £6m increase in trade creditors/payables.

Also, there are inconsistencies in the numbers. Early on the directors state that cash from operations is £11.7m and net cash is £0.8m.

Really?

The cash flow statement reports Cash from Operations as £10.3m.

And the net cash reported on the balance sheet is: Cash £3.8m, short term borrowings £1.9m and long term borrowings £3.8m. I make that net borrowing of £1.9m.

[sweetunicorn] 20/7/2021 09:13

SDI is a compounding machine.

SDI has grown FCF in the high double-digit percentage range annually over the last 5y.

I think 25% FCF growth is very realistic in the long term.

With a RoCE (u/lying FCF basis) of 28% and FCF growth assumed to be 25%, there is a very strong reinvestment moat which will massively increase the intrinsic value of SDI.

SDI has excellent potential with great management and a highly profitable and high quality buy and build business model.

I think the market will increasingly come to appreciate the high quality of strongly growing and very stable cash flows from low cyclical high growth businesses especially with a 100% reinvestment rate at 28% RoCE.

[steeplejack] 20/7/2021 08:25

These figures are excellent but were largely expected given broker forecasts.I agree,FCF growth is outstanding.The shares have retreated around 20% from an all time high of around 220p and in a nervy market,i suspect some have topped holdings and taken a few profits.Current price levels offer a buying opportunity but the current market is pretty feral right now and that might temper enthusiasm.

[sweetunicorn] 20/7/2021 07:59

Analysts FinnCap 6.6m Progressive GBP 5.6m FCF expected for FY21. SDI beats expectations by 60% with FCF FY21 GBP 9m and FCF growth of 200% on the FCF basis that matters to me!

Serial acquirers should always be valued on an FCF basis.

#SDI outstanding #FinalResults FY21. FCF rises 200% ~£9m #SDI is trading 19x FCF (175p) and 80% discount to peer which trading 36x FCF average.
Rev up 43.2% PBT up 73.3%. Cash £3.8m + £5.0m of undrawn bank facility (M&A Power) + strong M&A pipelin. 1-2 acquisitions expected FY22

I stand by my assessment that SDI is undervalued compared to its peer group and the high quality is NOT yet recognised and appreciated by the market. However, I believe that over the next few years more large international investors will become aware of SDI and the market efficiency and shareholder quality will improve, which will lead to a strong multiple expansion and dissolution of the valuation discount.

[hastings] 20/7/2021 07:39

I'm with rivaldo on assessment and sentiment, so regardless of where the share price goes today or tomorrow I'll continue holding as I have done for quite a few years now.Catching up with management later so will add comment for interest.

[rivaldo] 20/7/2021 07:34

Results bang in line with both Finncap's and Progressive's recently upgraded expectations with £7.41m adjusted PBT. Net cash at £0.8m is hugely ahead of expectations, even with the Monmouth Scientific earn-out to come.

One to two further acquisitions expected this year and plenty of headroom to make these reasonably material.

Above all, post year end trading is nicely in line and the outlook for this year is as optimistic as the usually very cautious management team allow - note the studiously honest and down to earth comments throughout about costs increasing but still being below pre-pandemic levels, Atik Cameras' large OEM Covid orders being one-off in nature but continuing through to April'22 etc etc.

Happy to continue holding this stock for a long time to come.

[pugugly] 20/7/2021 07:31

Great results BUT how do they compare to expecations?
Looks to be fractionally behind last Progressive not but only by a hair - Not significant (imo) but market might react negativlely as not exceeded expecation and we are in a Fear On market - However we a very Covid centric-

FinnCap - Keeps target at 195p Today's note

[johnveals] 20/7/2021 07:18

And the great results this morning underlines that.

[rivaldo] 18/7/2021 16:08

Nice comments here from Georgina Brittain, manager of JP Morgan UK Smaller Companies trust, about their holding in SDI.

They first bought in just over a year ago, and she describes SDI as an "acorn" at a sub-£100m m/cap on purchase which she hopes will grow into a FTSE 100 "oak"....

She notes that SDI throws off great cash flows, and their buy and build strategy when it works can be an "absolutely fantastic virtuous circle"

Listen from 22 minutes 20 seconds - "we're properly excited":

[tomps2] 16/7/2021 11:44

John Rosier mentions SDI (SDI) in the latest PIWORLD interview at 2m36s

Watch the video here:

Or listen to the podcast here:

[fozzie] 16/7/2021 10:08

More great posts from you SU, I thank you for them.

[sweetunicorn] 16/7/2021 09:38

Great developments at SDI.

Major Investment Program at Graticules Optics Ltd

Great to see #GraticulesOptics another great #SDI company continuing to expand its capacity. long-term investment in organic growth. Orders seem to be excellent and business is going well.

"Graticules Optics is currently undergoing phase one of a major investment program designed to increase production capacity, expand manufacturing capability, and improve working environments.

This investment has already seen a completely new and additional electroplating line, together with a sophisticated ultrasonic cleaning plant and multiple new hi-tec exposure units, which are now in place, in newly refurbished laboratory areas.

Over the next 12 months, all departments will be completely renovated with new plant, equipment and additional clean room facilities, enabling Graticules Optics to remain at the forefront of technology and lead the way in the supply of micropattern products.

Further expansion to the factory area is planned in 18 months’ time, with a large extension to the building, which will create even more office and manufacturing space."

[sweetunicorn] 15/7/2021 18:12

SDI buys companies at attractive prices at 3-6x EBIT (median last 12 acquisitions ~4.5x). Compared to the peer group SDI can buy at very attractive prices which is mainly due to the target range in TAM where SDI focuses on small companies for which they pay ~£4-7m. I think the focus on the quite attractively valued GB TAM compared to very expensive US TAM also plays into SDI's hands.

SDI also regularly acquires companies that they know or have worked with. SDI also has long-standing good relationships with owners who are potentially inclined to sell their businesses one day. This reduces risk and makes it easier to negotiate a price that is fair to both parties.

SDI is not entering the roll-up hamster wheel of being driven from one acquisition to the next. SDI is focused on buying and building, leveraging synergies and crosseling effects to maintain organic growth towards 10% while working through its strong M&A structures with a strong M&A pipeline to maintain M&A growth at 20% by making a platform acquisition every FY and building on it with smart add-on acquisitions.

SDI has invested heavily in its existing businesses, which has had a strong positive impact in recent months. In particular, the investments in strong marketing and sales structures at the subsidiaries have already had a positive impact and will continue to have a positive effect in the long term.

There continues to be strong growth potential on the organic and M&A front through regional and sector expansion via existing networks/businesses and add-on acquisitions or through platform acquisitions in new regions or sectors.

SDI's portfolio is focused on less cyclical industries and the service and products are predominantly in the low to medium range of 500-5000 GBP and are largely supplied in customised versions to sticky customers and many OEM customers.

The low price range and the low cyclical sectors in which the products and services are offered ensure that they are not financed by the customer in the cone, which makes the cash flows less sensitive to interest rates. As the cash flows are predominantly generated in less cyclical and narrow niches, the cash flows are stable over a full interest rate and economic cycle, which enhances their value in the DCF model. In addition, these factors provide strong pricing power, which also supports the high and consistently rising margins.

SDI has been able to increase FCF by ~85% p.a. on average since 2017. The FCF growth as well as the other growth factors (revenue + profit) and the profitability factors (ROIC) are in expansion (YOY % change), which indicates systemically positive developments and further strong growth.

Management continues to emphasise that it does not want to distribute FCF via dividends or share buybacks because it sees enough attractive reinvestment opportunities. The peer group, on the other hand, distributes ~45% of its FCF while SDI can reinvest the full FCF at a high ROIC (>15%).

SDI continues to expand its M&A structures and the CEO emphasised that as the company grows in size and complexity due to the increasing number of companies and possibly an additional sector, he will strive to introduce an additional management level at the sector management level, as is also the case with Halma.

Due to the strong growth structures SDI has implemented in recent years and the stable low cyclical strong growing FCF which should currently be at ~GBP7-8m, a strong M&A buy and build structure and the resulting strong growth potential, I consider SDI to be very attractively valued.

The comparable larger serial acquirers such as Halma Judges Diploma Danaher Heico Addtech etc. have not been able to expand their growth for years but are mostly in growth contraction while SDI continues to accelerate growth across all growth factors. At the same time, SDI is growing at about twice the rate of its peer group.

In the long term, prices will always adjust to the fundamental development. And I think a high performance serial aquirer like SDI which can increase its FCF with ~28% in the long run and with currently ~25x FCF trades at a more than 40% discount to its peer group can easily grow into its valuation.

SDI will be able to grow its intrinsic value very strongly over the next few years due to its very strong reinvestment moat, creating very satrk value for its shareholders.

I am a very long-term investor and do not intend to sell my positions.

If the reinvestment opportunities deteriorate in many years (Berkshire effect - big numbers) SDI will start to pay out part of the strong cash flow as dividends. on the current share prices there will then be strong dividend rewards.

To recognise the high quality of SDI requires a very deep study of the individual subsidiaries and corporate structures.


No investment recommendation.

[sweetunicorn] 15/7/2021 14:57

I don't know much about charting because it doesn't play a significant role in my very long-term investment strategy based on fundamental analysis.

At a price of 176p, I see SDI as a high-performance serial acquirer with management-confirmed long-term growth potential of 28% p.a. (8%organic+20%M&A) that has shown FCF growth of ~85% p.a. since 2017 and is currently trading at a discount of over 40% to its peer group on an FCF basis.

As I firmly believe that this strong undervaluation will be reduced (multiple expansion) and the strong expansion in the growth factors (strong FCF growth) combined with strong reinvestment moat (high ROIC >15%) will strongly increase the intrinsic value of SDI, I have used the last few days/weeks to continue to build up strong SDI positions.

I have complete confidence in the SDI management/board.


No investment recommendation.

[adobbing] 15/7/2021 13:07

Hope so, ready for a top up!

[johndoe23] 15/7/2021 12:01

Wonder if 160-170p will be tested again?