Sdi Share Discussion Threads

[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?

[sweetunicorn] 14/7/2021 10:04

#SDI trading at current price of ~185p and the FinnCap expected FCF for FY21 GBP 6.6m at a MC/FCF Multiple ~28x and at a valuation discount 30% to peer group #JDG #HLMA #DPLM. I expect #SDI will report FCF for FY21 GBP ~7m and currently trades with ~26x FCF. I think this strong undervaluation to the peer group will disappear shortly...


No investment recommendation.

[sweetunicorn] 11/7/2021 20:20

Excerpt of news and information from the SDI subsidiaries:


ATIK CAMERAS ....

Nice how wide the application range of #AtikCameras imaging processes/products is.

Besides astro, health sector/analysis, art sector, #ATIKCAMERAS also offers solutions for niche industry/aerospace sector in field of material analysis. #RollsRoyce



"Figure 2 shows a diagram of the imaging system. The system consist of an Atik 314E monochromatic camera (Artemis CCD Ltd) with an ICX205AL ExView 1392 × 1040 CCD (Sony Corporation)."





CHELL INSTRUMENTS ....

Chell Instruments developing very well and is more just sensors for F1. Chell offers sensors+ calibration solutions for many different industries+ future megatrends.

currently:

"Chell Instruments Support Drug Companies as Spotlight Falls on Pharmaceuticals"





ChellInstruments, with its great people and great broadly diversified and fast-growing business, will move on to new even greater strengths with the support of the #SDI family. Informative and worth reading in a recent article by Chell Sales Director Jamie Shanahan.

[bull19] 10/7/2021 19:32

Thanks for taking the time to provide such a detailed post SU

[ymaheru] 10/7/2021 16:36

...and SweetU, thank you very much for your detailed post. Much appreciated.

[ymaheru] 10/7/2021 16:35

Yeah, bull19 it is difficult to value acquisitive companies.

SweetU, ok I see how you're calculating.
That is higher FCF than I'm working on, but still only brings me to 300p share value with my conservative methods.

I'm also working on 20% growth for next few years.

I can see that price (multiples) will increase as more large investors/ analysts start to follow SDI.

The question in my mind is whether its a better investment than others I'm looking at.
I see a few companies seemingly more undervalued than SDI.
I'd actually prefer the share price to dip at some point, so I can buy more shares in such a well run company. That may not happen any time soon, though.

[sweetunicorn] 10/7/2021 08:58

I focus by serial acquirers primarily on the development of FCF -- FCF/Share.

At the same time, revenue growth and profitability (ROIC) are key factors in my valuation process for SA compounders.

I mainly focus after the analysts of FinnCap they serve as advisors to SDI and I think they have a good insight into the operational business. This also confirms why FinnCap's forecasts are regularly very close to the published numbers.

Progressive Research also thinks SDI through with regular research. However, Progressive tends to be more superficial in its analysis according to my assessment and tends to be further behind the published figures with its rather cautious forecasts.

FinnCap forecast FCF of GBP6.6m for the past FY21, ~5% below my forecast FCF FY21 of GBP7.1m.

Progressive Research, on the other hand, forecasts an FCF of only GBP 4.5m, which I consider to be very low.
It is noticeable that Progressiv has not adjusted or raised its FCF forecast since the Feb TU although SDI pushed the numbers up again in May TU.

I regularly go into developments at SDI on my Twitter channel and also on the factors of FCF development.

But I can briefly give an overview of how I arrive at FCF of ~7.1mil fY21.

FCF for full FY20 was £3.042m.

FCF for H1 FY21 6 months to 31 Oct 2021 was reported in the half year report FY21 FCF GBP 3.833m.

This means in the first 6 months of FY21 #SDI already has ~28% more FCF than in full FY20! H1 ended 10/31/20, ahead of extremely good TA Feb 2021 with strong OEM orders at ATIK. Atik then released another update in March 2021 after the TA in Feb, where they wrote about several OEM orders.

Also, the Monmouth acquisition and the Uniform acquisition were not included in the first half of FY21 and will only have a strong positive impact on FCF in H2 FY21.

In addition, the handover of a GBP1m+ project to a leading turbine manufacturer was reported by Chell in H2 which should also make payment in H2 due after handover.

In addition, it was reported in H2 that business at Synoptics is excellent and also from the Thermal division strong new trade partnerships and regional expansion e.g. to Africa were reported, which should have driven sales further strongly in this area in H2.
Furthermore, the merger of Thermal Exchange and ATC was reported in H2, which should eliminate these unnecessary duplicate structures in the future and thus also generate cost savings and at the same time positive potential through knowledge exchange and process standardization.

Furthermore, it could be observed how in the subsidiaries in H2 FY21 the personnel reinforcement and upgrading in the sales and marketing departments was further strongly accelerated.

Also, the very strong developments at Monmouth especially the numerous major projects with clean rooms in H2 should have had a particularly positive impact on H" FCF after the earnings out in Feb/March.

Thus, I personally assume that SDI was able to moderately improve FCF growth in H2 compared to H1 because the Corona tailwind continued but in addition the burdens in the other areas have dissipated and returned to old heights.

Assuming that SDI achieved the same FCF in H2 FY21 as in H1 FY21 this would mean a FCF for the full FY21 of ~£7.7m. I have deducted a safety margin of 10% for my calculation and therefore forecast a FCF of ~7.1m GBP for the past FY21, which would mean that SDI is currently trading at a closing price of 1.90GBP and a MC of 188GBP at a MC/FCF of ~26x. This means a discount to the peer group which trades at ~35x a discount of 25%.


Forcast/Fwd Multiples:

Mean FCF growth since 2017 is ~85% at the year! If we now assume that #SDI can grow ~20% acquisitively with a further acquisition in the current FY22 and ~10% with strong organic growth in the range of 30% (this is also expected by SDI management in the long term), this results in an FCF of ~£9.3m for FY22, which would mean that SDI is currently trading at a 12m fwd FCF multiple of ~20x. This implies a valuation discount to the peer group (fwd multiple mean 36x) of ~80%.

I hereby confirm my personal 12m fwd Price target for SDI of ~300p by end of July 2022 which would correspond to an expected 12m return of ~55% from the current price at 190p.

Serial acquirers and high performance compounders like SDI are often undervalued. Investors find it very difficult to recognize the future potential.

In order to recognize the potential of high quality serial acquirers and to be able to determine future growth factors as accurately as possible, it is absolutely necessary to take a very close look at the company structures. It is important to know the corporate culture and the performance of the management as well as the created structures and networks.

Personally, I think SDI has created the necessary highly decentralized structures and has the potential across all management levels to continue to grow its low cyclical business at ~25-30% p.a. over the long term.

SDI is still in the young growth phase and the growth drivers are all in expansion (Change YoY %). The profitability factors (margins/return on investment) are also expanding and are already at a very high level compared to peers.

The high sales and FCF growth in the mid 2-digit range in combination with the very high profitability (ROIC) as well as a solid reinvestment moat via a strong M&A structure and M&A pipeline make SDI an excellent high quality compounding business which is however regularly underestimated by investors.

However, I believe the valuation discount will increasingly dissipate as large and financially strong global investors take notice of SDI. With JP Morgan and Danske Bank, the first major international investors have already set foot in the SDI door in FY21 H2 / FY22H1.

This is not an investment recommendation everything I write are personal thoughts and the information must be checked by the reader himself for accuracy and completeness!

[bull19] 10/7/2021 07:02

I'm new to this, but I wonder how easy it is to value a company like this, where acquisitions seem to be an important part of their growth strategy? After all the EPS you quote is for the company (or i should say group of companies) as it is today, but this would increase on any future acquisitions?

[ymaheru] 09/7/2021 22:29

Hi SweetU, what are analysts predicting, please?

I’m calculating on 5.6p for 2021.
That brings me in at a fair value of around 224p, and most stocks trade at a discount to fair value.

Or, alternatively, how much are you predicting for EPS?

Thanks

[sweetunicorn] 09/7/2021 20:44

Nice to see the great and professional new #MPBIndustries homepage. Great low cyclical business with high share of individual sticky OEM customers. Great to see #SDI companies becoming more professional and present on the web. Great $SDI.L team spirit!



Custom designs

Customers' own specifications

"Over 60% of MPB Industries’ business is derived from instrumentation specifically designed to customers’ own specifications. This includes special flowmeters, alarms and switches, which MPB manufacture competitively in volume quantities."



Shaky hands have now been washed out of #SDI. Next week market start looking forward to final results 20 July and presentation management 23 July. Fundamental developments last months point to excellent FY21 which I expect to beat analysts' forecasts by ~10%.

#SDI Technically strong support at 190p. I think we are on the verge of a turnaround in momentum (MACD /RSI) and rising prices.

There are enough washed out investors on sidelines and #SDI will get attention of large international investors to function as buyers after excellent Final Results and next acquisition. It is always same game when in these healthy washouts shares move from weak to strong hands.

no investment recommendation. always check the data and information yourself.

[sweetunicorn] 08/7/2021 17:15

Nice to see ... Frederico Dias Key Account Manager at #AtikCameras
presents first pictures of the new Atik scientific camera powered by a #CCD77... scheduled to be launched later this year...

More news coming soon. #CameraLaunch #OEM

[sweetunicorn] 08/7/2021 09:01

I have added #SDI positions 194p. In the short term, shaky hands seem to be further interested in profit taking. In the long term, I see 194p as buy prices . The very bullish long term investment case remains intact.

The median consensus estimate from both analysts FinnCap Progressive Research forecasts FCF FY21 of £5.6m. FinnCap expects FCF FY21 of GBP6.6m. I think #SDI could be slightly above estimates at ~GBP7.1m.

With my expected FCF FY21 of GBP7.1m, #SDI would trade at MC/FCF ~27x. Compared to peer group #JDG #DPLM #HLMA, which trades at ~37x on average, this gives a steep valuation discount.

I think this valuation discount will disappear after the #SDI Final Results FY21 announcement on 20 July and an informative statement from management on 23 July.

I expect more large international high quality financially strong investors to take notice of SDI's great potential.

I expect FinnCap to adjust the #SDI price target by 10% to reflect the final results. In addition, I expect high quality acquisitions in the current FY to add another ~10% to FinnCap PT. In addition, I expect further strong organic growth through regional expansion (e.g. Monmouth -- USA) and the strong investment in high quality sales and marketing personnel will have an increasingly positive impact.

With FY22 fwd12m growth factors, I expect FCF growth of 25%, giving fwd FCF FY22 ~£9m. This would result in #SDI currently trading at a fwd MC/FCF of ~21x, #HLMA #JDG #DPLM at a ~38x fwd FCF basis. I see a 12m upside potential of ~55% and set my personal #SDI price target at 300p by end July 2022.

Not an investment recommendation. Always check data and details yourself. I am very heavily invested "long" SDI.

[petewy] 05/7/2021 10:03

Thanks Sweet

[sweetunicorn] 01/7/2021 16:17

I see my described short-term scenario as confirmed. short-term oriented traders and shaky hands were washed out. Retest of support at 195p (PT FinnCap) - 200p (20 DMA). I expect a weakening of the downward momentum in the short term and a transition into a sideways consolidation in a range of 190-210p. I expect a breakout from the sideways consolidation only with the announcement of a takeover (M&A RNS). I expect a takeover towards the end of the calendar year. SDI management has no M&A pressure. I can well imagine SDI building up a cash position via cash flow and looking to expand credit facilities. Then the powder keg is filled to focus on high value acquisitions. I would like SDI management to tell us something about the credit facilities on July 20/23 and whether they plan to expand the credit facility with the increasing FCF in order to increase the M&A workload while maintaining moderate leverage.
I have continued to build SDI positions this week and intend to do so in the coming weeks and months. No investment recommendation!