Sdi Share Discussion Threads

[nchanning] 24/8/2021 09:52

All true but would expect c. £10 million to be spent on acquisitions by 2023, possibly adding about £2 million to net profits to replace COVID related business . All the signs are of a natural recovery in the other businesses that might be ahead of typically conservative management forecasts . All that being said a buyer is still being asked to pay a steep multiple of normalised earnings but surely the quality of the business deserves that .

[sphere25] 24/8/2021 09:49

Ello, ello, ello

What be going on here then?

Peculiar fall in a very bullish market, so bullish that even the recent weakness got gobbled up in an absolute flash but what about SDI?

Having a quick look...

Adj eps 6p for the year gone

Forecasts:

2022 6.4p
2023 5.0p?

Revenue
2022 42.1
2023 40.0?

How the hell do shares like this get up toward 200p and even higher for a time? Surely you need to be beating forecasts and putting out some strong growth to justify those multiples.

It doesn't even look worth a go down here. No doubt the bullish market spirits will give it an opportunity to bounce back at some point, but there are alot of companies like this about on nutty ratings imo.

Perhaps this is new norm of exuberance but this type of sell down looks well justified.

I'll pass unless it gets clobbered some more and there is no bad news in the market, which I am sure holders will be frantically checking right now.

Usually best to wait for a firmer bottom to minimise risk when a chart falls like that too, but let's see what it does.

Pass for now but had a look in seen as it stood out in a dull market.

All imo
DYOR

[trident5] 24/8/2021 09:45

Yes, the price got way ahead of itself, and seemed to factor one-off performance as recurring.

[elsa7878] 24/8/2021 09:31

Eps last year 5.5p

This years estimate 6.6p

2023: Back down to 5.2p.

The reality appears that last years and this years figures have been boosted by Covid related sales which forecasts indicate will disappear in 2023.

This is all highlighted in the results and shows that if you stripped those covid sales out the underlying business not expand by 19% but actually contracted. £4.5 million - £6.1 million = -£1.6 million. I'm not saying that is surprising...

SDI Group revenues for the year were £35.1m, compared with £24.5m in 2020, an increase of 43.2% over 2020. Sales growth from acquired businesses, including sales of Chell Instruments in the period to the acquisition anniversary at end November 2020 and post-acquisition sales of Monmouth Scientific and Uniform Engineering, contributed £6.1m, while organic sales growth was £4.5m or 19%. Sales arising from two specific one-off COVID-19-related contracts, at Atik for cameras into PCR instruments and at MPB for flowmeters into ventilators, totalled £6.1m in the year.

I understand that this is an acquire and build business but always good to look under the hood to see what they have now.
No shareholding...but have been looking...happy to be corrected.

[steeplejack] 24/8/2021 09:24

Bids inside the quote for 25000 but the price remains fragile.I presume they'll be broker calls to ascertain that everythings ok because this sustained fall is unsettling.Reiterating the bull case on a bulletin board is not going to steady the ship unfortunately :)

[our haven] 24/8/2021 09:13

And at 7 percent down this morning, even more attractively priced. :-)

[sweetunicorn] 24/8/2021 07:43

Interim results for the six months ended 31 October 2020

IMC Q&A

Q23:



In my recent discussion with Mike Creedon, the SDI CEO, I also asked if management was still committed to the long-term 28% target. He confirmed it.

It is a target. SDI also tracks other KPIs very closely and reviews them monthly. Among others, order pipline and profitability ROIC etc.

ROIC is reported to be over 30% for FY21. This also puts SDI well above its peer group.

For serial acquirers, I generally use cash flows / FCF as the valuation basis because it is the key metric along with profitability figures to evaluate the compounding factor.

SDI can report a strong long-term FCF growth factor of >30% p.a. with a high profitability of ROIC >30%. The growth and profitability factors are in expansion.

The peer group shows far less strong factors that are even still strongly negative in contraction.

I think the valuation for SDI is very attractive.

When evaluating the cash flows, one must also consider the composition of the sources from which they are generated.

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

NO investment recommendation!

[ymaheru] 24/8/2021 03:45

Hiya Sweetu

The way I value shares, SDI is at a far lower discount than other stocks, most of which are not in that peer group.

However, I didn’t know that management were indicating 28% growth over the next few years. Do you remember where they say that, please?
I’m working off slower growth, but can imagine that they’ll achieve 28% if they say that.

Thanks

[sweetunicorn] 23/8/2021 19:07

You write that your focus is on companies with a focus on M&A growth.
Such companies (serial acquirers) should be compared and valued on an FCF basis.

SdI reported FY21 FCF adjusted for one-offs of ~£6.2m.
With a current MC of ~£160m, this results in a current MC/FCF multiple of ~25x.

SDI Management continues to forecast long-term annual growth of ~28% (8% organic and 20% m&a growth).

SDI was able to increase FCF by an average of 100% p.a. over the last 5y.

If one now assumes a forward-looking 20% growth for the current FY (SDI's management expects 1-2 acquisitions and moderate organic growth), this would result in a Fwd FCF of GBP 7.5m for FY22. This would put SDI at ~21x fwd FCF. This is a massive valuation discount to the peer group (Halma Judges Diploma mean fwd FCF multiple >35x).

Note that the peer group has much lower growth factors than SDI!

SDI has an excellent business but needs to work more on its financial market communication to provide the stock market with the necessary information on a regular basis and in the right format to adequately assess the quality. But in the long run, price follows cash flow.

Currently, there is a mispricing in a seasonally difficult environment, but this will dynamically dissolve upwards in due course, as it has in the past.

[ymaheru] 23/8/2021 18:49

Yeah, I invest in growth companies (generally acquisitive ones), and value them all the same way.

SDI had way overshot compared to what the market knows about the company and it’s earnings.
They’ve not historically increased earnings by 70% at all and I doubt they will in 2022 or 2023.

The SDI share price is barely under a fair value, whereas a lot of decent British stocks are trading far under my calculated values.

[az4hr] 23/8/2021 17:18

130s are you serious 164 is low enough very surprised that forecasts have gone down

[arregius] 23/8/2021 17:09

The cleantent product is an addition to the range and is complimentary to the Monmouth cleanroom range. It is a product that has been largely ignored from a marketing perspective and the team at Monmouth think with some promotion it will sell much better than it did in the hands of the predecessor.

[ymaheru] 23/8/2021 16:46

I agree that it’s a share price correction that was waiting to happen.

The share price had a run far exceeding the news/ achievements of SDI.

At the current price, I’m still not buying more shares, but would be tempted if it falls to 130’s.

[sweetunicorn] 23/8/2021 16:19

After my communication with CEO Mike Creedon, I am confirmed in my long-term investment case.

SDI will continue to do what they have done very successfully over the last few years.

They will continue to buy very good companies at good prices. Although one has to assume that the highly liquid PE funds will continue to drive prices worldwide.

SDI has shown how well they can buy and build.

SDI has great executives and high quality companies. Strong cash flows that are growing strongly together with an M&A pipeline will further create opportunities for reinvestment.

SDI management is very cautious in what they do and very shareholder value oriented in everything they do.

The Clean Tent add-on acquisition is small but will produce stable cash flow and expand Monmouth's product offering and reach.

It is a signal that SDI will continue to turn the M&A wheel with focus and discipline.

More and larger acquisitions will follow.

I continue to wait and the market will know the true value of SDI in the coming years.

These current hyteric periods of fear and panic have always been buying opportunities for quality companies like SDI.

I think ~23x fwd FCF multiple is a very attractive price.

[arregius] 23/8/2021 16:11

Annual report keeps the 1-2 acquisitions before 22

[rivaldo] 23/8/2021 15:50

Ken Ford is 72 - at that age I'm delighted he's retained 60% of his large holding in SDI and is still so committed to the business!

SDI have always underpromised and overdelivered in the past, and knowing this management team I'd be very surprised if that didn't continue.

Finncap's forecasts take no account of acquisitions, which are bound to come and will be wholly or mostly funded from existing resources (dilution is a very last resort here).

With the core businesses now trading strongly out of COVID, plus Atik continuing to thrive given its COVID-related contracts going forward - and as hastings says it wouldn't surprise me to see another OEM entering the fray - SDI may well have capacity for further rather pleasing announcements.

[sweetunicorn] 23/8/2021 15:42

#SDI £150k add-on acquisition. I understand from a brief exchange with CEO $SDI.L has acquired Clean Tent. This was an asset purchase for £150k. It's Clean Tents brand, portable clean rooms. It is a brand that will absorb Monmouth. Informations will follow @Monmouth_Sci homepage

[hastings] 23/8/2021 15:41

Good to hear shanklin. Regarding the small addition, no announcement has been made due to the size, but no doubt acquired at a good price!

[shanklin] 23/8/2021 15:39

hastings

Completely agree, which is why I keep on using the word "superficial".

Having sold out of SDI when one of the directors made a "loose lips" comment about potential for funding an acquistion from a (heavily?) discounted placing, which then never happened, I would be happy to buy back in at some point

[arregius] 23/8/2021 15:38

https://twitter.com/jogilog2/status/1429814868228575242?s=21

[steeplejack] 23/8/2021 15:31

Remember that Ken Ford sold two fifths of his holding around 183p in May.I was somewhat surprised that the shares pushed on so aggressively following that sale.Ken has extensive city experience and i'm sure the decision was given some serious thought.Unlike some,i always regard "insider" sales as being very instructive.The shares have had a hell of run from the 50p mark over the last 18 months and at some juncture a correction was likely.Other than today,however,the volume doesn't suggest there's been sizeable profit taking.A current forward multiple in the mid 30s leaves little room for disappointment.I haven't top sliced because i feel the growth story remains essentially intact.There might have been a trading hiccup perhaps that's leaked but i'm tempted to believe its idle hands looking to tease out a bit of stock during quietish summer months.

[hastings] 23/8/2021 15:03

Shanklin, you of course correct that some may be selling for the reason you state.However, the view assumes that SDI will not make further earning enhancing acquisitions which to my mind is absolutely wrong.Additionally, there is a possibility that ATIK wins further business from the Chinese OEM or for that matter another could come on board. But rightly they do not assume or expect that.Personally very comfortable with SDI as I posted after visiting last week. Further falls will in my view offer opportunities for those that like the story!

[shanklin] 23/8/2021 14:48

MG1982

I hope you are not invested in SDI, with no clue as to what I am referring to.

ROFLMAO, You could look at the current broker forecasts, finCapp's latest update is free to access on their website.

Once you have read it, you will hopefully understand my post... ...and will understand why (superficially) SDI has gone ex-growth, at least in EPS.

No position here, so only posting to state the very obvious reason why some people have perhaps been selling.

[mg1982] 23/8/2021 14:39

shanklin,

how does a buy and build company go ex-growth at this early stage of its cycle? With a stated strategy of acquiring businesses I fail to understand your superficial comment?