Sdi Share Discussion Threads

[fuji99] 24/1/2024 14:15

4 months are enough to know the scale of any problem and hide skeletons in the closet.
A new CEO would investigate and start from scratch to understand in depth what's going wrong. This is without taking any side.

[nchanning] 24/1/2024 13:51

He's coming up to 4 months in the job so hardly an SDI lifer pal

[fuji99] 24/1/2024 13:02

It would be more reassuring if the new CEO was an outsider. At least he/she can get rid of any bad business habits. Then we can easily see all the culprits leave if one shakes off their comfort zone. If the model didn't work in the past it won't work with the same people who made it redundant today. The business needs new blood and new practices to attract confidence from the market, institutions and PI's. Otherwise as it is there will be stagnation for years.

[worldwidet] 24/1/2024 08:41

Organically, nothing spectacular has happened at SDI. The companies are mediocre and I don't think they are worth as much as they are reported on the balance sheet (see monmouth desaster). The goodwill will have to be written off massively in the coming recession. The FCF that is generated is falling massively and not rising, which is what you would expect from high-quality companies.

You and the other SDi fanboys always like to look to the past and dream of returns from the past. But today's shareholders who are buying now no longer have any of that. It's about what the shambles of management with the chip shop can create value in the future in an environment of higher interest rates and a weak economy. Creedon has left behind an uncontrollable risk of heavy debt and a collapsing FCF. Over the years, he has created a corporate culture of lone wolves. Managers who do not identify with the company in the long term and do not think like shareholders because they hardly own any shares.

Bulls like to believe in the good at SDI but don't be disappointed or surprised if there is a very rude awakening.

I've been writing it here for a long time and the share price has fallen ~60% since then. Who is right?

I wish the bulls the best. But I expect a lot more pain here.

And bye...

[nchanning] 24/1/2024 08:01

And what percentage of AIM companies matched SDIs performance in this golden period ? Yes when you buy a niche UK manufacturer for 5 million quid it doesn't come with 3 Harvard MBAs running it . But they are fundamentally good businesses that have been successful independently with just a few nudges from head office

[worldwidet] 23/1/2024 18:03

Don't get me wrong. I don't want to speak ill of Mike Ceedon or Ken ford. But please note the following. Mike Creedon led SDI in a very young growth phase in which small fortunate acquisitions have a big impact. It was a time after the financial crisis. The new economic cycle had just begun and fiscal policy, together with monetary policy, flooded the economy and financial markets with cheap money. In this phase, the flood of cheap money lifted all boats. But now we are in a new phase of a decade of low growth and a phase in which money costs something again. Risks are now being priced again. Mike Creedon is no longer able to cope with this new environment. But it doesn't help shareholders to look back. It's nice what hymns of praise they sing about Mike Creedon, but none of the shareholders can buy nothing from that in the future. The balance sheets are full of goodwill. I think the takeovers that have been made are far less substantial than the bulls are describing here. I think there will be considerable potential for streamlining in the coming economic downturn. I also think the existing staff and management are not of high quality. Creedon has implemented a culture of stubborn lone wolves. The whole SDyi system was geared towards Mike Creedon. There are no competent managers in the subsidiaries, otherwise external management personnel would not have had to be brought in again and again via intermediaries for the SDI headquarters. There are no managers in the entire SDI construct who fully identify with SDI because no one really holds any relevant shares.

[worldwidet] 23/1/2024 17:03

I am not sure whether it makes sense for SDi to make further acquisitions in the current debt situation with a collapsing FCF and to drive up the debt and interest burden even further. It has become clear that SDI is not in a position to integrate acquisitions profitably with the available management structure. I believe there are still massive write-offs to come. The recession has not really started yet. The worst is yet to come. It's nice to dream of a trough but I think they are racing towards a cliff and the big fall is yet to come. The new CEO will be busy cleaning up the chip shop for a long time. I don't think he will succeed. He has no relevant stake in SDI and therefore lacks long-term motivation. A competent EX - Halma manager with massive amounts of his own money would have to buy into SDyi and take over the CEao position. Anything else makes no sense. The current staff was hired by Creedon and therefore according to Creedon's ideas. There would have to be a complete change of scenery. A completely new management DNA needs to be implemented. LEADERS who are massively invested in the company and therefore think like shareholders.But that's just my opinion. SDI remains uninvestable for me.

[nchanning] 23/1/2024 12:44

As regards director buys I think old Ken ford would have felt obliged to buy a token amount here even during weak trading , so hopefully they are just in a close period like the one that preceded the acquisition of Peak Sensors , where multiple directors bought at a much higher price once the deal was announced

[nchanning] 23/1/2024 12:38

As regards the future path of earnings I have no particular view on the next trading statement , but I certainly believe the company is closer to trough earnings than peak earnings . The quasi recessionary environment in SDIs key markets and destocking excuses are pretty solid reasons to be under earning right now . It's still a high gross margin niche manufacturer that should get back to mid teens margins when the economy recovers . If we compare to pre Covid levels SDI traded on more than 4x sales and now we're getting close to 1 x sales . Can see a reasonable path back to 9p earnings without making any acquisitions as the economy recovers and interest rates come down . That would bring a narrative change and a 15-20 multiple again

[nchanning] 23/1/2024 12:30

I'm not going to deny that there could be some bad news to come that explains Mike's sudden departure . But we have to bear in mind that if the company is already sure of a significant miss in profits they are duty bound to inform the market immediately .As regards his departure itself , there are explanations which wouldn't represent any loss of value for equity . Could they have had a disagreement about whether to do a placing to do a large acquisition, a boardroom bust up , or Mike simply wanted a break from the stressful job of running an AIM company .

[worldwidet] 23/1/2024 08:23

If the new CEO is fully convinced of his company, we should now see massive buying by the new CEO and his executives at 71p. But of course that won't happen because he is the same type of CEO as Creedon.

The new CEO will know about the skeletons in the closet and the coming write-downs on the massive goodwill.

I stand by my opinion that if the management had been buying massive amounts of stock with their own money then better decisions would have been made at SDI in recent years.

Anyone hoping that everything will improve with the new CEO will be bitterly disappointed in my estimation.

If the new CEO was really competent, he would have used the departure of Creedon to immediately gain the trust of the shareholders with clean communication. If he had now bought massive amounts of shares with his own money, you could get the impression that he would be in a position to pull the company out of the mud.

But none of that is happening. The old CEO takes off and there is only a short worthless RNS that is published late.

No communication and explanations to shareholders and no insider buying.

It all continues as it left off with the old CEO.... a tragedy

I think it's only a matter of time before Chairman Ford abandons the sinking ship and throws his stock on the market.

[mortal1ty] 22/1/2024 16:12

These sort of situations only ever lead to bad news. Different types of CEO leaving,

1) CEO dies.
2) CEO retires.
3) CEO moves to exec-chairman role.
4) CEO moves to a board advisory role.
5) CEO leaves but with a prolonged transition period.
6) CEO leaves with immediate affect, and is replaced with CFO or COO.
7) CEO leaves, with short-transition period, to an external hire.

I've tried to get it roughly in order of negative signal. This is close to the bottom, but they have an internal hire. That means if there are any skeletons in the closet (accounting funnies etc.), then they probably would leave rather than accept the role.

The CEO leaving itself isn't so bad on its own... it's just the pattern of weak trading, acquisitions, high debt. It's culminating to something. A story is being written here.

[isa1m] 22/1/2024 14:49

Hold on.
Mortal1ty assumes Creedon has been fired because of news yet to emerge.
I'm hoping it was due to his unfitness already widely demonstrated over recent years.
Nevertheless, it will take a couple of years of steady performance before SDI becomes investable. Optimistically, saving Creedon's salary and having an engaged CEO look like positive news.

[fuji99] 22/1/2024 14:14

Mortal1: I am afraid you may be right ! Your assumptions follow some logic that nobody should ignore.

[steeplejack] 22/1/2024 13:08

"I've been preaching about it here for over a year"Ah you're a lay preacher,that explains it.

[kemche] 22/1/2024 11:38

Excellent research mortality. Thanks.

[mortal1ty] 22/1/2024 11:37

FYI in balance sheet distressed scenarios, and in this market, I would suggest 5x EBITDA is likely where it trades on downgraded numbers (if they come).

So, 6.4m EBITDA -> 5x, implies an EV of c. £33m. Take off the £16m net-debt, and you get to a market-cap of £17m.

I am trying to do you all a favour here....

[mortal1ty] 22/1/2024 11:34

I think someone mentioned high gross margins. They are c. 60%. Net-debt to EBITDA now is 1.6x.

If the company got to 2.5x net-debt to EBITDA this business is effectively breaching covenants, and the banks could take ownership.

I think this would only require a £6m miss in revenue given the high gross margins. That is a 10% miss on sales?

Maths -> 10% sales = £6.4m. 6.4m * 0.6 = £3.6m EBITDA hit. That pushes EBITDA down to £6.4m -> 2.5x net-debt to ebitda.

In the nicest possible way holders.... you should really get out now.

[mortal1ty] 22/1/2024 10:58

These shares are going to absolutely crater. I am talking about possibly bankruptcy and rescue rights issue. Seen this so many times before. I honestly would bet my house that this blows up.

Aggressive acquisition strategies + rising debt + management selling shares + downturn in trading + failing to integrate acquisitions properly -> management leaving mess for someone else to sort out.

£13.2m net-debt at the half year. They bought peak sensors for £2.4m. That pushes it up to £16m roughly.

EBITDA of £5m for the HY -> 1.6x geared. Balance sheet becomes a concern above 2x typically.

So basically one more profit warning away from major balance sheet stress. CEO gone.

So next profit warning will be rising debt, falling profits, major panic. Shares half.

[steeplejack] 22/1/2024 08:27

No interest here now.If the CEO steps down unexpectedly its a sensible idea to update on trading or people will suspect the worst.

[isa1m] 22/1/2024 08:24

Not sure I understand. Good news, I think, could have happened sooner.

[worldwidet] 22/1/2024 07:45

The captain leaves the sinking ship.

The way shareholders are treated here is shameful.