Sdi Share Discussion Threads

[rivaldo] 29/7/2021 07:32

Today's Shares Magazine reiterates its Buy for SDI in its Great Ideas column. It concludes:

"Acquisitions are a major part of the story so it is pleasing to see growth opportunities enhanced by its latest, Monmouth Scientific. Strong cash generation (it cleared its £4 million net debt last year) and balance sheet strength underpin this
acquisition strategy, with one analyst highlighting the benefit from the company’s increasingly diverse catalogue products and end markets.

‘With a good order book and good trading in May and June, as laboratories re-open post-pandemic, we leave revenues unchanged implying strong growth of 20%,’ FinnCap analysts said of their full year April 2022 forecasts.

SHARES SAYS:  Still a great buy for the long-term."

[pugugly] 23/7/2021 19:56

petewy
Presentation has been recorded as have the answers to the questions

All available FREE. Also absolutely FREE to register with IMC
Just use the link below and register those companies in which you are interested and IMC will advise you of the date and time of the next presentation scheduled - assuming the company is using the site. Many historic recorded presentations are also available so you can get a feel of management before coming to a go/no go investment decision.



Personally I find it probably the best site to get an impression of the competence - or otherwise of management and their plans for the business. OK maybe I am a bit biased but suggest you have a try and let us have your feedback -
Best wishes for the weekend and try and keep Covid free.

[petewy] 23/7/2021 19:38

Thanks PUG

[pugugly] 23/7/2021 17:07

Trust everyone has already registered their questions with IMC.
Presentation started on time - Running now - Mike starting to speak and asked if any queries contact him directly at SDI

Edited at 5:04pm Very encouraging presentation and some very probing questions well answered - Still confident to continue holding.

[sweetunicorn] 23/7/2021 08:53

ATIK continues to drive new product development, which accelerates organic growth.


ATIK homepage:

Apx60 In Development

BY PAUL O'DONNELL ON JULY 22ND, 2021

Our brand new 60 MP CMOS camera, the Apx60 is now in the final stages of the rigorous testing needed for CE standards accreditation. Our Research and Development team have been busy developing prototypes for the tests, so we’ve taken images of the assembly process, to showcase the robust build quality of this exciting new product.

The Apx60 will be launching late summer and is available to pre-order now

[trident5] 22/7/2021 15:23

"ie 25.1% ahead of H120 which was 17.3% down on H119"

which would be 3.5% up on H119.

[sweetunicorn] 22/7/2021 15:10

Thanks for the correction. Revenue still down on 2019?

However, there remains the sharp slowdown in growth across the broad growth factors (change YoY %) for many years and the strong focus on a more cyclical sector combined with a high valuation.

But I did not want to focus on JDG here in the SDI topic area.

[cockerhoop] 22/7/2021 15:01

"I think if you look at the JDG TU, JDG's order intake is still 17% behind COVID levels and you look at JDG's highly focused portfolio and compare it to SDI, you can see how high quality SDI's business is!"

This is not correct SweetUnicorn - JDG's H1 order intake is ahead of pre-Covid H119 levels. ie 25.1% ahead of H120 which was 17.3% down on H119.

[sweetunicorn] 22/7/2021 14:53

Full agreement Rivaldo!

#SDI can continue to count on tailwinds from COVID-related long-term trend towards COVID/mutation testing/analysis in Synoptics Monmouth MPB ATIK. In addition, the new OEM customers will create new networks which will lead to long-term organic growth.

At the same time, as the COVID impact and travel restrictions and uncertainties fade, SDI's other sectors and companies such as Chell Sentek and Astle will see a boost in growth.

Ken Ford on this:

"The outlook, thanks to our agile business model, is positive and we are planning for further organic growth, including from one-off COVID-19 related orders, and appropriate acquisitions during 2021-22."


"The need for SDI products, particularly in the life science and medical industries remains robust and there has been strong demand for technologies from several companies in our Group for use in the fight against the COVID-19 pandemic. The volatility in many global markets caused by the pandemic has impacted companies in our Group both positively and negatively this financial year, and we expect this to continue into 2022. However, underlying market drivers such as automation and in-line and off-line analysis for use in continuous processes, as well as the production of affordable vaccines and biologics globally means many of our technologies will continue to be in demand especially with original equipment manufacturers (OEMs) with which SDI companies have long standing trading relationships."


Mike Creedon, CEO:

"We expect those companies in the segment that have been affected negatively by COVID-19 to experience a period of growth as the impact of COVID-19 decreases."


I think if you look at the JDG TU, JDG's order intake is still 17% behind COVID levels and you look at JDG's highly focused portfolio and compare it to SDI, you can see how high quality SDI's business is!

SDI has a broadly diversified portfolio in less cyclical sectors. CAshflows come from a significant proportion of recurring revenues and the products and services are predominantly in the low cost range of 500-5000GBP whereas JDG is very focused on one sector and predominantly offers very expensive products.

When you then see that JDG's growth has been slowing down for many years and is at a moderate growth level of ~12% while SDI is expanding with all growth factors and is showing a long-term high growth of ~30%, you see the very attractive valuation of SDI when you consider that JDG is almost twice as expensive as SDI on an FCF basis!

I think Progressive Research sums up the potential of SDI well in their recent study:


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 £5m andrawn facilities coupled with access to a further facility if required. Acquisition targets are small/medium-sized companies with high-quality, niche technologies that have sustainable profits and cash flows. The strong FY21 performance, against the backdrop of the pandemic, demonstrates the resilience of the Group with a diversified group of companies. We believe that SDI is in a strong position to maintain its successful buy and build business model throughout FY22E. The outlook remains positive with further organic growth and acquisitions uplift expected, demonstrating continued commercial demand for the niche technologies SDI provides. We look forward to further positive updates as SDI Group has entered its current financial year (FY22E) from a position of strength."






"We look forward to further positive updates as SDI Group has entered its current financial year (FY22E) from a position of strength."


I fully endorse this statement ;-)





No investment recommendation. Always check the statements yourself for correctness.

[rivaldo] 22/7/2021 12:51

Good read across for SDI from JDG's update this morning. Looks like non-COVID related activities and order books are recovering strongly now - and since SDI have a number of business benefitting strongly from COVID, then SDI should get the best of both worlds.

[bigbigdave] 20/7/2021 17:38

NEW HQ UPDATE:

The roof is complete on the main building and the lower walls are starting to emerge.

The annex framework is going on showing door positions and windows, all ready for cladding in a few weeks’ time

[sweetunicorn] 20/7/2021 17:19

Update my valuation calculation on FCF basis after FY21 #SDI #FinalResults.

SDI is currently trading at MC/FCF 19x at 180p with a reported FCF FY21 of £9.3m. The direct peer group (#HLMA #JDG #DPLM) is trading at a median MC/FCF of 34x. This results in a valuation discount of 80% to the peer on an FCF basis.

The reported FCF includes a relevant portion of prepayments of GBP 3.5m (working capital). These prepayments are normal in the OEM business. SDI has continued to expand its OEM customer business, which will continue to increase in the long term, presumably leading to higher prepayments.

Forward calculation.
SDI has increased FCF by an average of 107% annually over the last 5y. If we now take into account the one-off orders from ATIK and MPB and assume 1-2 acquisitions as forecast by #SDI (conservatively calculated 14% M&A growth) and 6% organic growth, this results in 20% fwd FCF growth and GBP 11m FCF for the current FY22, which means #SDI is trading at 16x fwd FCF while the peer group is trading at 36x on a fwd FCF basis.

Fundamental derivation of Fwd factors.
The quality of acquisitions is increasing. SDI has a strong M&A pipeline, which is why the 1-2 acquisitions assumed by SDI management and thus 14% M&A growth seem realistic.

Organically, there is further growth potential through crosselling effects and expansion into adjacent sectors and regional markets via existing networks. Monmouth is planning regional expansion into the US market via the existing Synoptiks networks, which should be realised in FY22. In addition, the strong investments in MBP and the
Graticules Optics should have a positive impact on organic growth starting in FY22.

Summary:

Given the massive valuation discount to peers with lower growth factors and the strong ongoing growth potential of #SDI, I consider SDI to be very attractively valued and see great long-term upside potential. I maintain my personal 12m fwd PT of 300p for end July 2022. 65% upside potential 12m fwd.

I think the analysts' PT of 195p is very conservative and I see a lot of room for upgrades.

No investment recommendation. Check the correctness of the data yourself!

[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.