Sdi Share Discussion Threads

[worldwidet] 07/12/2022 09:46

If the massive interest rate hikes and extremely high inflation only have a weak impact on the economy and a soft landing is possible, the current valuation of SDI looks fair. However, if the economy enters a sharp and prolonged recession (which is signaled by the bond markets with strongly inverted interest rate structures), then the valuation is too high because the recession and thus the weakening demand with high inventories will lead to strong cuts of the results. SDI is a great company but a deep recession would also hit SDI hard.

I remain cautious and even with great companies like SDI further on the sidelines.

[steeplejack] 07/12/2022 09:13

That's a very comprehensive and informative statement by Ken Ford.Trading is quite clearly demanding.Note that cost increases in power have yet to impact gross margins with most of the group covered by old contracts until the first qtr of 2023.The reduction of cash flow is in large part due to prudence with a build up of inventories ahead of anticipated supply dislocation.Recent acquisitions have lower gross margins than the group average.This can be addressed but in a difficult environment.Things are getting tougher but the group is coping well.The current rating in the mid /high teens seems about right.The group clearly has a keen eye to debt management as it enters tricky waters.i sold stock recently after the management sales but am happy to retain a core holding.

[rivaldo] 07/12/2022 08:42

I'me talking about the percentage movement that's overdone - the amount of shares traded is tiny in quantum relative to that movement.

Here's Progresive's new note with 9.5p EPS forecast this year



Extracts:

"Another strong set of results

"SDI Group has announced strong H1 results to 31 October, with the full year
expected to be in line with market expectations. Total revenue increased by
28.3% to £31.7m and adjusted operating profit by 19% to £6.9m. Despite
increased global economic uncertainty, SDI’s niche businesses, operating in
diverse end markets, have driven overall organic revenue growth of 3.8%.
Safelab Systems and Scientific Vacuum Systems (SVS) acquired over FY 2022
and LTE Scientific Limited (LTE) in the first half of FY23, contributed to the
strong sales growth, alongside the well-flagged, one-off Covid-19 related
contracts within Atik Cameras. Management notes that post-Covid
fluctuations in demand haven’t fully settled, but the general level of sales
enquiries remains strong. Our FY23 and FY24 estimates are broadly
unchanged, with the exception of an increased interest charge given the
current interest rate environment."

"SDI is benefitting from its niche positions and product diversity. Another
strong first half highlights management’s ability to execute its ‘buy and
build’ strategy and deliver outstanding results, despite residual Covid
disruption and inflationary supply chain pressures. SDI is well-positioned to
continue to grow underlying organic revenue and profitability, with a strong
acquisition pipeline underpinned by cash generation and financial strength."

"Summary and outlook

SDI remains focused on smaller niche businesses operating with a high degree of
autonomy, allowing a fast response, 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 specialist nature of technical, scientific, and medical and life science market segments offers a significant opportunity for increased shareholder value.

We also haven’t assumed a contribution from potential new acquisitions, which offers upside to our estimates.

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 £6m undrawn facilities, and given strong cashflow we forecast net debt to be broadly neutral by the end of FY24. We believe that SDI is in a strong position to continue to deliver its successful ‘buy and build’ business model."

[bulltradept] 07/12/2022 08:14

Actually it's about average for day, so massive volume so early on.

[rivaldo] 07/12/2022 08:11

MMs taking the mickey out of sellers - down 7% on just 64k shares traded!

This also happened last week and the shares quickly bounced.

SDI are still on a very decent value multiple, especially compared to its sector comparator JDG which trades on a much higher rating.

[worldwidet] 07/12/2022 07:59

Massive refers to the cut in the FCF outlook. 35% cut in FCF is massively. EPS cut is separate.

Sdi a great company.
With a very likely recession and a difficult global environment, and the fact that SDI will face more headwinds due to its increasing size, investors should ask the valuation question.

CEO asked the valuation question and decided to sell almost all of his stock?

The next few years could be more difficult than the last bull market with lots of easy money from central banks.

[hastings] 07/12/2022 07:58

Re-FinnCap "massively" not how I would describe a 1% shave on pre-tax profit for 2024!

[rivaldo] 07/12/2022 07:54

Minor changes to EPS then, and FCF was predictable given the need to address component shortages by buying in advance etc.

Progressive Equity have also adjusted their EPS to 9.5p this year, only due to interest costs.

Of course (1) these forecasts don't include any further acquisitions, and (2) SDI always guide the market rather conservatively, as shareholders know from many years of experience!

[hastings] 07/12/2022 07:53

Beat me to it this morning riv and well covered. Atik is very interesting, particularly in light of the recent Tweet you mention and my chat with the CEO on that. Given the absence of any reference to that one assumes it is very recent and post the period. Hopefully hear more in due course.

[worldwidet] 07/12/2022 07:49

FinnCap (who are very closely guided by SDI management) have massively cut FCF forecasts for FY23 and FY24.

EPS also cut

FCF

FY23 7.7 -> 5
FY24 10.9 -> 9.6


EPS

FY 23 9.4 -> 9.1
FY24 9.4 -> 9.3

[rivaldo] 07/12/2022 07:42

SDI have already made over £17m of acquisitions in the last few months, so that's growth sorted for the foreseeable future.

And there's still headroom within their facilities for more - with HSBC quite happy to extend those facilities, within which SDI are trading quite easily on a net debt: EBITDA ratio of only 1.0x.

SDI state there will be "a small increase in interest rate expense in the second half", so this is relatively immaterial. I assume interest rates on their facilities were fixed some time ago when first negotiated?

Organic growth isn't huge, but then again in this climate to achieve almost 4% organic growth is impressive. I suspect Atik might have some interesting news to come based on its recent tweet/news.

[worldwidet] 07/12/2022 07:23

"Cash generated from operations reduced to £1.9m (H1 FY22: £4.4m).

Organic revenue growth across the business was 3.8%. 

Net debt, or bank debt less cash, was £15.4m ;at 31 October 2022, compared to a net cash position at 30 April 2022 and 31 October 2021 of £1.1m at both dates."



The main part of the growth comes from acquisitions.

Current situation:

Cashflow lower

Debt increased very strongly

Interest rates are rising massively and with them the financing costs

SDI needs more and more acquisitions because of the larger numbers for the same growth.

What money will be used to finance these acquisitions?

Organic growth is collapsing.

Global recession very likely in the next 16 months

[rivaldo] 07/12/2022 07:22

Strong H1 results today, with 5.02p adjusted EPS in H1 (up 28%), which puts SDI in a strong position to at least meet expectations of 9.9p EPS for the year.

Particularly as H1 brought two major new acquisitions which will fully contribute to H2. And also because Atik appears to be benefiting from some Chinese PCR camera sales for H2 which I'd assumed would have finished in H1 - these seem to have been paid for in advance but not yet recorded as sales.

The outlook is confident in meeting expectations, and with increased headroom from HSBC there's still a stated appetitte for more acquisitions. Sales enquiries are at a "strong level" and SDI are coping well considering all the current constraints on component supplies, labour, pricing etc.

If these various factors begin to settle down then SDI should be in a position to do even better.

[dicktrade] 01/12/2022 14:16

Riv,
Totally agree, I was looking to add today prior to next Tuesdays HY numbers, so got them at a discount

[rivaldo] 01/12/2022 12:22

Crazy - marked down 6p on just £50k of trades?! That's this market for you, where MMs don't want to hold any stock. Which creates opportunities.

[rivaldo] 30/11/2022 10:18

Cheers hastings, appreciated. Very encouraging to see Atik moving into Aerospace and Satellites - the latter in particular is potentially huge especially as the UK is a global leader in this fast-growing space.

[alter ego] 29/11/2022 14:00

Thank you for posting Hastings. Really useful to have news from the "horse's mouth".

[hastings] 29/11/2022 13:55

Caught up with CEO Mike Creedon this morning regarding Atik and the recent post that appeared on Linkedin.
All very brief, as the results are out next week, but he confirmed that this is something new and not China related.
Rather than a specific hard order though, my understanding from our conversation is that at this stage, it is related to a project/trial which I understand could then result in orders further ahead.
Importantly, the related area/s embraces Industrial, Aerospace and Satellites which could bode very well for the future, where Atik is serving up a very high-end product.

Additionally, Atik is still very much serving the Astronomy market, where again, it has new products with an aim at the very high-end of the market.

Obviously hoping to speak with management on results day again, with a view to penning something further.

[shanklin] 28/11/2022 07:21

No wonder the SDI share price has been cheery

[rivaldo] 28/11/2022 07:08

Cheers for that - "a massive project" sounds intriguing!



"Atik Cameras 682 followers 2d •
2 days ago

Atik Apx60 industrial cameras being shipped, kicking off a massive project. This challenging task was made possible through well-coordinated teamwork.

Old technologies to be replaced by the state-of-the-art CMOS cameras available. Preparing for the high demand expected on this project and future ChemiMOS partnerships."

[hastings] 27/11/2022 09:50

Thanks for confirming. I'm thinking this isn't China related, but something different which sounds positive.

[norbert colon] 27/11/2022 09:36

It's still on Atik Camera's LinkedIn page.

[hastings] 26/11/2022 16:32

If you go onto my Twitter page @private_punter you can see where I retweeted it.

[hastings] 26/11/2022 16:29

It appears to have disappeared! It was flagged up by someone else, so I've messaged him to try and she'd some light.I'm wondering if it was an old tweet related to the China OEM. Hopefully find out.Thanks for flagging up.

[valustar1] 26/11/2022 15:58

I can not see that tweet on their account