Sdi Share Discussion Threads

[petewy] 02/2/2021 12:47

They are
Boohoo Group (BOO), SDI Group (SDI), Cerillion (CER), RWS: Renew Holdings (RNWH), Cohort(CHRT), Pan African Resources (PAF)

[fillspectre] 02/2/2021 12:26

By the way - who were the other six of the AIM fabulous seven? I subscribe to Investor's Chronicle so it may be in the magazine out on Friday - although this week mine came on a Monday i.e. yesterday. Fils

[fillspectre] 02/2/2021 12:24

RE: Acquisition of Uniform Engineering. Not the most exciting in SDI's history. However, one assumes the business purchased includes some capital equipment and some ongoing orders / customer contacts. It probably secures supply for Monmouth Scientific and possibly allows several cross-selling opportunities around the SDI Group. If the supply of these enclosures is crucial to Monmouth then one presumes that the offering is quite unique - so SDI inherit the kernel of an interesting business. I wonder who they will put in charge. Given that the owner / manager was a sole trader - will SDI have inherited the business with some existing employees? Fils

[rivaldo] 02/2/2021 11:35

Hi 18BT. Firstly, it was SEV22 who posted it first, and secondly it seems to be freely available to anyone to read if you click the link - no paywall - so shouldn't be a problem as long as you post the link. I suspect it's different to the Alpha summaries on individual companies which the IC occasionally post.

[18bt] 02/2/2021 07:36

Riv - isn't that Alpha content behind the IC's pay wall (i.e. subscribers only). Apologies if not, but I'm not sure you should post that on a free board.

[rivaldo] 01/2/2021 23:14

Cheers SEV22, here's a direct link. Hope you don't mind, I've also copied this to the RNWH and MWE threads:

[sev22] 01/2/2021 18:03

Aim's magnificent seven quality shares.

London's junior market leads the way in this month's Alpha quality screen.

February 1, 2021.
By James Norrington, Investors Chronicle.

Aim stocks are once again scoring the best against our Alpha quality screen rules, with 37 companies passing at least 7/9 tests of which seven companies scored 9/9.

This month’s magnificent seven includes SDI Group (SDI), a company which manufactures niche scientific and technology products.

The dream company...

The holy grail for buy-and-hold investors is to find a business that is capable of generating high returns on its capital and is able to reinvest all its profits for decades to come, while maintaining those returns. The compound-ing effect of such an investment is what every long-term investor’s dreams should be made of. A company making a consistent 15 per cent post-tax return on its equity and reinvesting all its profits would experience a near-30-fold (28.6 to be precise) growth in its equity base over 25 years, and after 50 years it would be a mind-boggling 1,084 times bigger than when it started. For a patient investor convinced that they have found such a situation, valuation should not act as a major impediment to a purchase.

Unfortunately, this kind of dream company is extremely rare and stock screens are too crude to provide the depth of analysis needed to provide confidence that a business may be the real deal. In particular, it is inevitable that some of the shares highlighted by our Alpha Quality screen will be cyclical companies that are enjoying a good run rather than companies that are well placed to sustain high returns through many business cycles to come. What our screen does do, however, is attempt to find pointers for companies that may have the potential to go some way to filling the dream brief. What’s more, buying shares in companies that look attractive based on quality metrics can often prove a profitable strategy, even if many of the shares picked fall short of the buy-and-hold ideal.

Our Alpha Quality screen uses two key measures of quality: operating margins and return on equity. We are mindful that debt can flatter a company’s return on equity, so we aim to reduce this risk from the screening results by introducing interest cover tests, to eliminate companies that are aggressively gearing up their balance sheet.

The screen uses two key measures of quality, which are operating margins and
return on equity (RoE).

The advantage of using RoE to measure the quality of a company is that it focuses on the returns that are ultimately of most significance to shareholders: after-tax earnings. However, RoE can be boosted by a company if it increases the amount of debt it carries. That means a high and rising RoE can sometimes simply reflect a reduction in the quality of the company’s balance sheet and little improvement, or even a deterioration, in the quality of its operations. The screen attempts to counter this with its interest cover test, which should help it avoid companies with very aggressively ‘geared’ balance sheets. Focusing on operating margins also provides an assessment of quality at the operating level – i.e. before the impact of debt.

● An operating margin higher than the median average (mid-ranking) stock in each of the past three years (i.e. quality that shows some signs of persistence).
● A return on equity (RoE) higher than the median average (mid-ranking) stock in each of the past three years (i.e. again, quality that shows some signs of persistence).
● RoE higher than it was two years ago (i.e. quality is improving as well as persistent).
● Operating margin higher than it was two years ago (i.e. quality is improving as well as persistent).
● A dividend-and-debt adjusted price/earnings growth (PEG) ratio below the top fifth of stocks screened (ie stocks must not be too egregiously expensive for the growth on offer).
● A price/earnings (PE) ratio above the bottom 10 per cent of stocks screened and below the top 10 per cent (i.e. not a suspiciously cheap or dangerously expensive valuation).
● Interest cover of more than five (i.e. high RoE is not overly dependent on the use of debt).
● Forecast earnings growth for each of the next two financial years.
● Positive forecast free cash flow.

Not many stocks pass such a stringent list of criteria. The ones that pass all the tests are listed at the top of the table (SDI is at the top), followed by those failing one test, then those failing two tests as detailed in the ‘Tests passed’ column. All stocks must pass the test for three-year, higher-than-average RoE and margin to feature in the table. While the primary ranking of the stocks is based on the number of tests they pass, inside each of these groupings stocks are ordered according to their attractiveness based on operating margin and three-month share price momentum (applies to SDI).

[this tea tastes of chicken] 01/2/2021 14:04

Clever acquisition. Like it very much.

[hastings] 01/2/2021 08:13

I see FinnCap has lifted the target price to £1.30p this morning.

[ayl30] 01/2/2021 07:45

Agree. Tidies up control of supply chain and retains profit of that in house. Will improve the bottom line and provide opportunity for incremental sales.

[rivaldo] 01/2/2021 07:43

Looks a bargain at £0.35m for £1m turnover and £0.1m PBT, plus all the synergies which can be expected from cross-selling etc.

[hastings] 01/2/2021 07:19

Agreed, small but seemingly a very sensible move that no doubt was executed on favourable terms for SDI.

[our haven] 01/2/2021 07:12

Sensible add on to the earlier deal to control supply.

[petewy] 31/1/2021 19:04

I'm 80 it would have killed me.. (surgeon quote: patient died, covid shredded his lungs)

[pugugly] 31/1/2021 17:07

petewy - very lucky (imo) you had the jab - Very often severe reaction can be an indcication that an infection by the virus would have been very bad and might have required treatment in hospital or worst case ICU - Best of luck

[petewy] 31/1/2021 16:51

Off topic...Had the covid jab yday Oxf Astra. Completely knocked me out. Had to go to bed and slept for 12 hours. I thought I was at death's door. If that was a mild "taste" I don't want the full Monty.

[fillspectre] 25/1/2021 22:28

Significant volume today. There seems to be some interest. Fils

[tongosti] 25/1/2021 13:27

The US market is indeed a real cause for concern. I can still see SPX push towards 4000 before we see a major pullback in wider markets. RUT particularly (with NDX following v closely) is v o/stretched. I agree with you that UK equities are quite cheap (in both a historical and geographical context) but we can hardly escape the gravitational pull of US indexes (if they experience a major pullback). On SDI valuations vis-à-vis its sector, wouldn't worry too much about it. When a major trend is in motion you can safely do away with valuation metrics (as they are poor timing tools, in my view) as investor value perceptions instead (and euphoria) rule supreme. I genuinely feel that SDI has a lot more gas in the tank once we are done with current pullback. Good luck.

[fillspectre] 25/1/2021 11:42

I know what you mean tongosti - sometimes the whole market can be overpriced. Valuations over in the US look particularly frothy. I do think though that over here we can take a little comfort that post Brexit vote there was a Worldwide flight out of UK stocks. At worst we have perhaps got less to fall than elsewhere. I wouldn't be surprised to see some of our defensive stocks like utilities rise a bit as pensions schemes buy back in. With SDI I think of it as a real world stock i.e. it makes and sells things I can understand. It also has diversity of products and services. The best thing appears to be the management who have the means to identify good profitable private British businesses and to bring them into the fold. I am not sure SDI's valuation multiple need necessarily rise to that of Judges but at least the valuation has some backing. Good luck with your policy tongosti - it makes sense to me. It is never a bad thing to take a profit. Fils

[rivaldo] 25/1/2021 11:13

Excellent bounce back. Which hopefully bodes well for the rest of the week!

I get the feeling SDI is a long-term hold for many people here. At this m/cap SDI should now be attracting even more institutional investment, adding to the already impressive investor register and reducing the available supply of shares. There's no reason imo why the share price shouldn't continue to consolidate and rise steadily into the next trading update in April/May, even without any further acquisitions, overall markets allowing.

Particularly with regard to the gap to be closed to the valuation multiple which sector peer JDG is currently trading at.

[tongosti] 25/1/2021 11:10

fills - I always keep saying that there are so many rulebooks on how to make money in this game. I have mine and you have yours and applied accordingly both can work. Yes I see where you come from and again it is a personal choice - I personally have no problem being completely out of the markets when I do not source any opportunities (but that's me). Thinks Jesse Livermore said it best: there is a time to make money and a time to stand aside. In a nutshell this is my preferred way of looking at markets. Like I said the other day, the larger trend here (as of now) is firmly up and I will be happy to re-initiate from the long side if the market dictates so. My game is all about getting chunks here and there during clearly defined larger trends. Good luck pal. Ps. I never give the benefit of the doubt to pullbacks (again, that's my way of playing the game, which may or may not resonate with other people - and that's fine) as I am not clever enough to reliably know when a 10% pullback is so as opposed to the first step towards a disastrous crash. Not relevant to SDI necessarily but am sure you get my gist.

[fillspectre] 25/1/2021 10:26

tongosti - you are not wrong in wanting to bank profits when you think a share has peaked. The question is always where do you put the money next? As SDI so far has not let me down I find it easier to rely on the steady upwards trend of this share. I do think though for this share to tick on upwards past 130p we probably need another upbeat trading statement or news of another good strategic acquisition. Fils

[tongosti] 23/1/2021 09:42

I also tend to think this is a pullback within a larger uptrend. We've had a powerful thrust and such pullback was to be expected hence I got out. Can always get back in long if Mr Market signals that will be the way forward. Re valuations being a timing tool I disagree (otherwise one could never buy the Amazons and Zooms of the world) but again that's a personal choice. Good luck all

[johndoe23] 23/1/2021 09:22

Just profit taking i imagine. My stop was hit for a very nice profit in just a few months. SDI are a well run, quality outfit, with scope to continue to grow. One of my rules is not to buy in any company above 20 x forward earnings, so at current level i wouldn't buy back. Whether i return or not, who knows? If not and the price continues to rise, i would say well done all who are still invested here! One door closes, others open...

[tongosti] 22/1/2021 16:49

1982 - you keep your gratitude. My SDI shekels have been in the bank for a few weeks now.