Sdi Share Discussion Threads

[rivaldo] 22/7/2022 08:39

The new issue of Shares Magazine out yesterday tipped SDI as one of its two weekly Great Ideas to Buy, saying it was "underappreciated" and "investors with an eye for
the longer-run recovery of the economy and stock market should invest now".

This was tipped/printed before yesterday's update and upgrades, so many of the figures quoted are now out of date and are even better value post-upgrades! But there are a couple of nice snippets which resonate:

"It also helps that the group concentrates on industries where regulation is high, competitive moats can be enforced and capital investment is less likely to be impacted by economic downswings.

Not only does SDI’s growth stretch back multiple years, has been high-quality growth. Gross margins typically run at around 65%, high for a manufacturing business, while returns on equity and investment of around 22% to 25% beat industry averages."

[nchanning] 21/7/2022 15:54

Trident , you have about 38 mins to buy Judges before it announces tomorrow morning that it is ahead of its overly pessimistic forecasts for the umpteenth time , then it won't look overvalued anymore ....

[trident5] 21/7/2022 12:25

Maybe Judges is overvalued?

[rivaldo] 21/7/2022 11:52

Finncap have updated - they have a 265p target price. They conclude (note the large amount of firepower for acquisitions):

"Valuation

SDI Group is a premium stock, built over the past eight years as it has successfully and consistently gone about its business. This premium valuation is merited through the combination of good organic growth in its operations with accretive acquisitions. Management has consistently added value through the introduction and integration of new businesses into the SDI stable, providing it also with the capital and capacity to drive incremental organic growth (22% in FY 2022, 19% in FY 2021 and 4% in 2020).

Acquisitions are unmodelled. With the constant prospect of additive acquisitions boosting the underlying operating fundamentals, the valuation is consistently grown into. Given the M&A arbitrage that exists between the purchase price (c.4-9x EV/EBIT) paid historically and the current trading multiple, if its recent acquisitional track record is a guide to future performance and value creation, any acquisition is likely to give rise to further EPS accretion and an uplift in the target price.

Together with internally generated free cashflow of £7-9m, the company has the firepower (£20m loan facility, £16m of which is currently undrawn, and excluding £10m accordion) to acquire up to c.£4m of EBIT, which would imply c.£16m of EBIT in FY 2024, some 33% above current forecasts.

SDI currently trades on FY 4/2023 EV/Sales, EV/EBITDA and P/E of 2.5x, 10.6x and 16.3x, respectively, which includes the benefit of the follow-on OEM Atik camera contract. This represents a substantial discount to its peer group (Judges Scientific), which is seen as a comparable investment with a similar and proven buy and build strategy. Judges Scientific currently trades on FY 12/2022 EV/Sales, EV/EBITDA and P/E of 4.8x, 19.7x and 25.5x (Figure 15).

We are making no changes to our target price of 265p, at which price the stock trades on EV/EBITDA of 18.0x FY 2022, rising to 21.3x FY 2023 (Figure 14). We expect SDI to generate free cashflow of £7.4m in FY 2023, rising to £9.0 in FY 2024, which would imply a FY 2023 free cashflow yield of 2.7% rising to 3.3%. At the current price, the FCF yield is 4.9% rising to 6.0%. Contrast this with Judges Scientific, which is expected to generate £18.4m of FCF, and trades on a 4.0% FY 2023 FCF yield."

[varies] 21/7/2022 11:35

Thank you all for the answer about dividends and your comments.
Even with a company achieving such excellent growth I like to see the initiation of dividends after a few years of increasing profits.
A dividend of 1p would cost SDI about £1 million but, given the modest amount of cash held, I can see why this is not proposed.

[nchanning] 21/7/2022 11:27

These are still very noisy results which flatter earnings and the growth rate . Normalised earnings are probably closer to 7p rather than 9p (still some PCR business in next year's forecasts), but I believe this is a business with a long runway of organic growth of c.10% and another 10% through the proven buy and build strategy . So whilst it not as cheap as it superficially appears , this is still a long term wealth compounder even at c.22x normalised earnings

[arregius] 21/7/2022 11:26

And hopefully there wont be any dividends anytime soon

[buffetteer] 21/7/2022 11:13

Correct we don’t want a dividend when the company is making 30% ROCE . They seem able to maintain these v high levels of returns which suggests their incremental returns are being maintained too . With this in mind SDI are better at investing their capital than I am and , so long as those returns remain elevated , I m happy for them to pay no dividends .I think Mr Buffett call it a “compounding machine”

[hastings] 21/7/2022 09:23

No dividend has been declared since coming to market.

[varies] 21/7/2022 09:19

Whilst very glad to see these excellent profits, I am a little concerned to see only a modest excess of Current Assets over Current Liabilities.
In these circumstances it is hardly surprising that no dividend is recommended and I cannot remember if we have ever had one.

[steeplejack] 21/7/2022 08:44

There's a seller out there and buys are being shown as sells at 156p currently.The shares probably warrant trading around 180ish even in this feral market.

[rivaldo] 21/7/2022 08:27

Progressive have issued a new note and have raised their forcasts, with EPS rising to 9.1p this year based on £11.2m adjusted PBT, due to what looks like a lower tax charge:



"Upgrading FY23E and introducing FY24E

SDI has started FY23E with good momentum and, with travel restrictions having been lifted, further geographic expansion is likely. We have increased our FY23 estimates, raising revenue to £57.9m from £53.1m and adjusted EBITDA to £13.9m from £13.7m. We introduce FY24 estimates with revenue at £60.2m and adjusted EBITDA £14.4m. The Covidrelated orders at Atik were considered one-off, however sales have continued at a high rate into FY23. Although no longer one-off, it is likely that at some point demand for PCR equipment will normalise at a lower level, and we have incorporated this into our estimates. We also haven’t assumed a contribution from potential new acquisitions, which offers upside to our estimates.

Summary and outlook

The group is in a strong position financially, with good operational cash flows and a solid order book. Management continues to seek targeted acquisitions, funded by cash flows from existing businesses and its £20m undrawn facilities, coupled with access to a further facility if required. The record FY22 performance demonstrates the continued growth potential from a diversified group of niche businesses. We believe that SDI is in a strong position to continue to deliver its successful ‘buy and build’ business model, with good opportunities to consolidate the highly fragmented markets that the group targets. Results with acquisitions so far have been exceptional, delivering strong financial returns and operational synergies.

The outlook remains positive with further organic growth and acquisitions uplift expected, demonstrating continued commercial demand for the niche technologies that SDI provides. We look forward to further positive updates as SDI has entered its current financial year (FY23E) from a position of strength."

[zipstuck] 21/7/2022 08:17

the forecast adjusted PBT for 2023 is less than this year so it needs acquisitions

[mammyoko1] 21/7/2022 07:54

From the FY results to 31 October 2021

Continued strong contribution from Atik Cameras due to one-time COVID-19-related contracts, expected to complete by January 2022

From the RNS 7th Jan 2022

The Company also announces that its Atik Cameras division has received a further firm order for cameras to be used in PCR machines, for delivery in the year ending 30 April 2023, extending the series of orders related to the COVID-19 pandemic.

From today's results

Demand for Atik cameras for use in the fight against the COVID-19 pandemic continued strongly throughout this financial year and remains robust into the new financial year. We are confident that the demand related to the current pandemic will be replaced over time by demand for similar products in the broader life sciences domain.

At Atik Cameras, sales of cameras for PCR machines, previously expected to be essentially one-off due to COVID-19 demand, increased further, and in fact they are now expected to continue at least for the first half of 2022-23

From the outset of the COVID-19 pandemic, in 2020-21, our Atik Cameras business received substantial orders from an existing OEM customer for cameras designed into the customer's PCR instrument. At the time, we considered these to be one-off orders, and we viewed follow-on orders from the same customer in the same light. Further and larger orders have followed in the 2021-22 year, and sales are continuing at a high rate in 2022-23. The expansion of Atik Cameras sales represents a large proportion of the Group's organic sales growth in both years. We can no longer consider these sales to be one-off, but it is also prudent to assume that at some point the demand for PCR instruments will normalise at a lower level. However, having demonstrated the efficacy and competitiveness of its camera, we also expect Atik to successively pursue a wider market for its products.

So some potential risk from Atik sales normalisation?

No position but considering a purchase

[hastings] 21/7/2022 07:50

I see Progressive has now pencilled in 2024 numbers with revenue of £60m forecast and EBITDA at £14.4m & adj EPS at 9.6p.

[rivaldo] 21/7/2022 07:50

Every single company and analyst uses the adjusted numbers to present/look for the core results of the ongoing business, not the reported figures, though of course it's necessary to look at the adjusting items as sometimes they're telling.

We shall agree to disagree :o))

All of which is immaterial in relation to SDI's sparkling performance and its huge relative current undervaluation relative to JDG in particular.

[trident5] 21/7/2022 07:45

No - they're manipulated numbers, and the manipulations recur year on year.
Always best to look at the bottom line.

[rivaldo] 21/7/2022 07:38

All analysts use the adjusted EPS figure, which was 8.71p EPS. They don't even bother quoting the basic reported EPS in their summaries.

So for comparison purposes the 8.71p adjusred EPS is the way to go.

[trident5] 21/7/2022 07:30

Profit before tax was £9.9m and eps was 7.2p.

[rivaldo] 21/7/2022 07:20

Fantastic results, well ahead of even the most recently increased expectations.

PBT at £11.8m compares to Progressive's latest forecast of £10.5m

And 8.7p EPS thrashes the upwardly revised forecast 7.9p EPS.

The outlook is very confident and has also been upgraded once again through to April'23. Knowing SDI's management the new current year number will likely once again prove to be extremely conservative and will be upgraded several times.

I note the comment that SDI expect "to acquire additional businesses" (plural) in this financial year.

[bigbigdave] 21/7/2022 07:10

Superb numbers, got to be due a re-rating.

[hastings] 21/7/2022 07:09

Excellent results ahead of what was expected with 2023 as also now revised upwards.

[hastings] 20/7/2022 13:32

Back from a holiday and well timed to catch up with management again tomorrow.Hopefully have something written up fairly quickly after that for further interest.

[rivaldo] 20/7/2022 09:53

For those who missed yesterday's RNS, the prelims are out tomorrow, with an InvestorMeet presentation on Friday:



I'm looking forward to them. We already know that revenues and profits for the year will "materially exceed current market expectations" - and that "we expect FY2023 to be the Group's best year yet, also ahead of current market expectations".

[mutandis] 30/6/2022 16:53

Sharma seems to have been out of the market for over 2 years since leaving Ultra and, the skill sets needed in a defence technology business like Ultra with revenue of £800m+ are quite different to the requirements of a small £50m commercial technology business. So, I am a little sceptical as to whether this will work out.