Sdi Group Plc

3.50 (2.69%)
Share Name Share Symbol Market Type Share ISIN Share Description
Sdi Group Plc LSE:SDI London Ordinary Share GB00B3FBWW43 ORD 1P
  Price Change % Change Share Price Shares Traded Last Trade
  3.50 2.69% 133.50 198,142 16:14:17
Bid Price Offer Price High Price Low Price Open Price
133.00 134.00 135.50 129.50 129.50
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Coml Physical, Biologcl Resh 49.66 7.54 7.40 16.25 132.24
Last Trade Time Trade Type Trade Size Trade Price Currency
16:17:23 O 3,000 134.00 GBX

Sdi (SDI) Latest News

Sdi (SDI) Discussions and Chat

Sdi (SDI) Most Recent Trades

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Sdi (SDI) Top Chat Posts

Top Posts
Posted at 06/6/2023 09:11 by worldwidet
Halma 38x FCF

If you think SDI is worth paying 30 times FCF then buy.

I think the risk premium at the current valuation is too low to buy.

SDI lacks a strong management team that is ready to take SDI to the next level.

But SDI executives hardly own any SDI shares, so there is no incentive to take SDI to the next level.

CEO Mike Creedon has done a great job in getting SDI to where it is now but it is urgent to expand SDI's structures and install leaders who are able to think bigger.

It doesn't need a one-man army, it needs a competent M&A team to take care of the M&A business so that the CEO and CFO can take care of the core business and strategic direction. It's about taking the existing business global and opening up new regions.

It is about increasing cash generation and optimising structures to increase FCF release to turn the M&A wheel faster.

As long as Mike tries to manage everything on his own, I see considerable risk.

It is about taking SDI to the next level and I have lost faith that Mike Creedon will be the right man to do it.

I respect Mike Creedon for what he has done and the value he has created for SDI shareholders but I see SDI facing huge structural challenges in the face of the RF environment which has changed massively and which are not yet included in the share price

Let's wait until the share price is in the 100p range.

Posted at 05/6/2023 14:50 by worldwidet
FinnCap (the broker closely guides by SDI management) expects only GBP 4.4m FCF for the current FY23. This means that SDI would still be trading at 30 times FCF at the current share price 131p.

Still no acquisitions in the current calendar year 2023. SDI would have to turn the M&A wheel much faster. SDI would have to make 4-6 acquisitions annually and thus constantly increase the FCF and the annual acquisitions.

But SDI is not making the much-needed progress in acquisitions because they are not creating the necessary M&A structures and lack the financial resources.

Everything at SDI is focused on one person, Mike Creedon.

Mike is pretty much handling the M&A activity on his own, but SDI urgently needs to build a competent M&A team that is focused on M&S networks and M&A execution so that the CEO and the leadership team can focus on strategy alignment and organic growth to grow FCF organically.

Mike is resting on his laurels but SDI has been stagnant for 3 years and FCF is actually declining.

If SDI does not manage to expand the M&A structures and build a competent team to minimise the one-man risk of Mike Creedon, I see serious problems.

The valuation with the 30 x FCF is still far too high. If the FCF continues to suffer in the coming recession as organic growth shrinks, the valuation will rise even further.

The share price would have to fall to 90-100p to offer an adequate risk premium.

Posted at 11/5/2023 09:12 by worldwidet
The executives hardly own any shares. If the share is really as attractively valued as the bulls write here, we should see strong insider buying. But the opposite is the case. Executives are selling their shares heavily.

I can only emphasise this once again.

The economic environment has deteriorated massively.

SDI has already been experiencing a sharp decline in organic growth for some time, which will be brutally exacerbated by the loss of the Atik orders.

For structural reasons, SDI has to make more and larger acquisitions, which is a problem because it lacks the FCF and the cash to do so.

It is nice when the bulls constantly promise acquisitions, but these acquisitions are also urgently needed.

SDi is sitting on debts caused by the last takeover and can hardly generate FCF.

With shrinking organic growth and stagnating FCF, where is the firepower for the urgently needed acquisitions supposed to come from?

Debt? at 5-6% interest rates and the credit crunch in the monetary transmission system continues to grow.

SDI would need to make 3-4 acquisitions in the range of GBP 4-6m per acquisition. SDI would have to produce an FCF of ~£20m annually.

I don't see how SDI can sustain the 28% annual long-term growth (20% M&A 8% organic) that management has promised.

I think we will see more downgrades and profit warnings in the next 12-18 months.

SDI is miles away from a stable dividend growth like JDG or HAlma can pay, which also justifies the valuation discount. In addition, JDG executives hold a good proportion of JDG shares.

I am not saying that JDG is attractively valued but SDI cannot be compared to JDG.

SDI has a long way to go to maintain the corporate substance of JDG.

Mike did a very good job of leading SDI through the post-2009 economic upturn in an interest rate cut cycle, now he has to show how he can steer the ship through a prolonged recession and solve the structural problems of a growing serial aqcuirer.

With ~5-% p.a. in high-quality government and corporate bonds, I can watch what happens on the stock market from the sidelines in peace over the next few months.

No reason to be greedy at the moment.

Posted at 19/4/2023 16:05 by worldwidet
The CEO and a former manager apparently see a good time to exercise share options...

Neither the CEO nor any other executive has bought shares with his own money. On the contrary, they are consistently selling and looking to get rid of their share options.

Mike is a smart guy and brings his hard earned money to the sidelines.

Mike has my utmost appreciation!

He has built a very great company. But a great company is not a great investment at all times.

"RNS Number : 7903W


19 April 2023

SDI Group plc

("SDI", "SDI Group", the "Company", or the "Group")

Exercise of Share Options, Director/PDMR Shareholding and Total Voting Rights

SDI Group plc, the AIM quoted group focused on the design and manufacture of scientific and technology products for use in digital imaging and sensing and control applications, announces that it has issued and allotted a total of 272,868 new ordinary shares of 1 penny each in the capital of the Company ("Ordinary Shares") following an exercise of a number of options.

SDI has been notified that Mike Creedon, Chief Executive Officer, has exercised 178,872 of approved share options at a price of 24.5 pence. Following the exercise and Admission, Mike Creedon will hold 351,372 shares, representing 0.34% of the ordinary shares held. A further 93,996 share options have been exercised by a former employee of the Group.

Application has been made to the London Stock Exchange for the 272,868 new Ordinary Shares to be admitted to trading on AIM ("Admission") and it is expected that Admission will become effective and trading will commence at 8.00 a.m. on or around 26 April 2023.

Following Admission, the total number of Ordinary Shares in issue will be 104,050,044 and the total number of voting rights will therefore be 104,050,044. This figure may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the FCA's Disclosure Guidance and Transparency Rules."

Posted at 13/4/2023 11:14 by worldwidet
I do not see any relevant risk for SDI in the fact that Mike will eventually retire. Mike is a very smart guy and I trust him to find a worthy successor. It could even be a great opportunity for SDI if Mike were to retire as CEO in the next 5 years and become Chairman of SDI, leaving the operational business to a CEO who is willing to think bigger.

Mike has done great things at SDI and what I write should in no way diminish his achievements!

However, SDI faces very significant structural challenges that roll ups and serial acquirers inevitably bring when they get bigger.

SDI's organic growth has slowed massively in recent years. The extreme growth has mainly been supported by the special factors of Covid in combination with some good smaller acquisitions.

Now, however, SDI is struggling to increase FCF strongly enough because organic growth is cooling off too much and there is too little liquidity available to turn the M&A hamster wheel faster.

With what liquidity should SDI make 6-8 acquisitions per year to keep M&A growth at 205 and how can SDI integrate all the companies with the existing structures into the group to get organic growth back into the high single digits?

When interest rates are close to zero, as they have been in recent years, and companies can obtain credit very cheaply and consumers are in a spending mood due to cheap money, the economy and companies can grow well.

But the general conditions have changed by 180 degrees.

Companies pay interest rates of 5-6% and consumers sometimes no longer get loans at all or only at very high conditions.

The highly liquid bond markets have priced in a deep recession for the next 8-16 months, which I personally think is very likely.

SDI's organic growth has already been severely curtailed over the last 3 years in a well performing economy and SDI is struggling to generate free cash flow.

I think in a recession, when companies massively cut back on capital expenditure and consumption collapses, SDI will experience even bigger problems in FCF generation, which will have a very negative impact on M&A opportunities and thus M&A growth.

SDI is dependent on an ever faster turning M&A hamster wheel and I do not currently see the structures and the financial framework to turn this M&A hamster wheel faster in order to be able to maintain the growth target of ~28% p.a. announced by management, which is currently expected by investors at prices around 160-180p.

It remains exciting. But I see a strong recession coming at a price of 160-180p and that is not priced in.

My personal opinion.

Posted at 25/1/2023 12:42 by rivaldo
The Telegraph's Buy recommendation is actually based on an interview with the Chief Analyst at Sanford DeLand (not on "thin lines"!) - Sanford recently bought in to SDI:


JDG are currently on a P/E of 23, a multiple 25% higher than SDI's. This despite JDG's m/cap being almost three times SDI's, which makes it much harder for JDG to "gallop" on a growth multiple than SDI. The likes of JDG and Halma are as such likely to look for much larger acquisition targets than SDI's pool of smaller targets - who as the Telegraph article says will be attracted by SDI's model.

SDI should be priced at 210p merely to equate to JDG.

I'd love to know where these "euphoric" stock markets are. Certainly there's been a nice upturn since the New Year, but "euphoria" is as overblown as talking about systemic breakdowns and throwing around low share prices without context. If there's an extreme recession then the entire market will be stuffed - and SDI are on a very reasonable multiple compared to many.

Plus SDI's debt is forecast to be a mere £13m at 30th April, i/e still lots of headroom for further acquisitions (hardly a "mountain"!). There are some valid arguments to be made as to inflationary pressures, Atik China sales, FCF etc, but all the exaggerations I've listed tend to invalidate credibility.

Posted at 25/1/2023 10:46 by worldwidet
@steeplejack I appreciate you as an experienced investor who is not blinded by the 12 year bull market but also focuses on the risks.

SDI only came on the list of many new investors after 2020 when SDI was one of the big COVID winners from one-off deals in this area (ATIK).

The "new" SDI investors, some of whom jumped on the bandwagon very late after 2020, are now trying to continue the success story and the growth that SDI made in its early phase into the future.

But the data shows that SDI can no longer just take over small companies with 4-6x multiples, but must increasingly focus on expensive acquisitions of larger companies to achieve a comparable impact on the balance sheet in M&A growth. The last acquisitions were over 7x multiples and SDI will increasingly have to compete with JDG HLMA DPLM and PE funds for good acquisitions. It should be noted that the last 12 years the economy grew strongly when interest rates dropped to 0 and the economy was well supplied with money. In this environment, SDI has also been able to grow its FCF well organically. Now the economy is in the process of cooling down very strongly and this could go on for several years. SDI has built up a mountain of debt with the last acquisitions and the FCF is not growing strongly enough to finance larger acquisitions.

Yes it is nice when because of a few thin lines in a major mainstream paper by an investor who has freshly invested in SDI 300p price targets are proclaimed and the SDI price bounces in the short term by 7-8%. But I think it might be prudent to reduce risk in the face of a recession ahead as the CEO and Chairman have done.

SDI investors are very spoiled. Everyone expects SDI to beat forecasts and continue to grow at 30%. I would imagine that there will be disappointments in the next 1-2 years if the risk of a recession materializes. 100-120p could well be realistic if panic breaks out in the stock markets because something systemic in the financial markets has broken under the interest burden.

Many are waiting for the next M&A RNS but I see it critically. SDI will continue to build up the debt mountain with another acquisition and in a weakening economy and a phase in which FCF from organic growth is lacking, there will be less and less financial power available to keep M&A growth high. If SDI wants to grow further by 30% which is what the investors expect and what the management expects (~8-9% organic 20% M&A) then many and large acquisitions have to be made and financed. I wonder where this FCF should come from if organic growth increasingly disappears.

The interest rate structure and the leading indicator are good signposts of what could still happen. In such a time I see CASH as the best investment to wait at the safe edge and to grab if the big panic starts because the high expectations that are currently priced in by the stock markets do not materialize.

I pull back again and wait and see what happens in the next 16 months.

Posted at 25/1/2023 08:52 by rivaldo
Cheers Malcolm. Great to see SDI getting some mainstream press attention. The article is essentially an interview with "Eric Burns, of Sanford DeLand Asset Management, whose Free Spirit fund recently bought a stake in SDI".

In case anyone can't read it as it's subscriber-only, a few tasty extracts - 300p is a nice round figure target:

“It has tended to make two acquisitions a year and so far it has not made a mess of any of them. On that basis I estimate its value at around 300p a share.” The current share price is just 153p.

Burns says he has also calculated a value for SDI on the assumption that it does not make any more acquisitions. That estimate is around 220p a share. The discount of the current share price to this figure, never mind to 300p, gives him a margin of safety should anything go awry at SDI.

But it’s not just these numbers that offer reassurance about the company and its acquisitive business model; we can take comfort too from the way it goes about choosing and then running the businesses it buys.

“SDI is considered to be a ‘good acquirer’,R21; Burns says. He takes as an example LTE, a scientific equipment maker it bought last year. “We went with SDI’s boss to see LTE last week because we were keen to examine the process by which it had decided to sell to SDI,” he adds.

“We heard that the two businesses had known each other for some years and that LTE, which was family owned before the sale to SDI, had been looked at by private equity buyers in the past.

“LTE was very keen to deal with SDI because of the reputation it had as a buyer after its acquisition of other businesses. It doesn’t rip the heart out of them – there are no mass redundancies, no accountants turning up to slash costs. The businesses it buys are left to carry on as before, with their existing brand and staff.”

“It buys companies that are already profitable but normally too small to attract much interest from private equity,” says Burns. “This means it can negotiate keen prices, typically just four to six times earnings on the ‘Ebit’ measure.”

In other words, the acquired business pays for itself in just a few years, after which its cash flows can help the company fund later acquisitions. This avoids the need to take on big debts or to “issue new shares like confetti”, Burns says, so earnings are not diluted for existing shareholders.

Its history of successful acquisitions has helped it to grow sales by 36pc a year over the past five years and earnings by 40pc a year.

“It’s a nice, steady growth business,” Burns says. “People don’t appreciate its value because brokers can’t account for future acquisitions. It’s a long-term buy and hold stock.”

Questor says: buy"

Posted at 08/12/2022 15:19 by worldwidet
The CEO deliberately chose the timing of the sale. If he had expected prices to continue to rise or if he had assumed that the share was undervalued, he would certainly not have sold it. I am glad that after so much hard work the CEO has taken the money and is not taking the risk of what could happen in the coming years with a severe recession.

I think the money is better off with his happy children for the next 1-3 years than in SDI stocks. Apparently he came to the same conclusion.

SDI has benefited massively from 2 factors in recent years:

1. Economic growth driven by central bank liquidity that is far above the norm in the historical context

2. Covid19 and the associated temporary surge in demand from China (Atik)

SDI's growth was mainly driven by M&A, while organic growth increasingly weakened.

The organic growth was essentially determined by the special situation at ATIK caused by Covid.

The growth strategy at SDI is essentially based on taking over high-quality companies at low multiples (3-6xEBIT) and optimizing them within the group and allowing them to grow. The resulting cash flows are reinvested essentially through M&A.

As long as the economy is running at full speed and the FREE cashflow can continue to increase, the M&A hamster wheel can continue to turn vigorously.

Because the stronger SDI grows as a group, the more the M&A wheel has to turn to keep growth high.

However, if, as with SDI, the cash flows normalize due to the weakening economy and the disappearance of special factors such as Covid, and the free cash flows available to the company for M&A collapse due to high long-term inventories, etc., there is no power to turn the M&A hamster wheel faster and faster.

To do this, SDI has to look for ever larger M&A targets or make more acquisitions to keep the hamster wheel going. To do this, SDI has to go into the shark tank and fight for M&A targets with JDG Halma Diploma and financially strong PE funds. Recent takeovers clearly show the trend towards higher takeover multiples.

In addition, SDI accumulated a small mountain of debt with the last major takeover.

If the assumption of a deep and prolonged recession proves to be true and this also affects SDI's free cash flows, SDI would be constrained at a time when it could certainly make good acquisitions due to a lack of financial power.

At a time when the economy is heating up and the order books are bursting, it is very easy for a young serial acquirer to grow rapidly and satisfy investors with incredible growth figures.

However, if the economy weakens (and with it the cash flows) and the company reaches a size in which small takeovers or special situations in one of the subsidiaries (Atik) no longer lead to extremely positive effects in the group, growth will weaken significantly.

I think the long-term growth targets of 28% p.a. (20% M&A 8% organic) announced by the SDI MAnagemnet are too ambitious.

SDI will experience increasing structural headwinds over the next few years as the group continues to grow and individual acquisitions and positive developments in individual subsidiaries (such as Atik) will have less of an impact on the group.

If SDI can grow at 10% over the long term and can afford a dividend with a 20-30% payout ratio, a ~15x FCF valuation might be fair. I consider the current rating of ~30x fwdFCF to be too high in view of the company-specific, but also geoplotic and economic risks.

The CEO recognized this and decided to take his capital out of the risk.

Posted at 28/11/2022 07:21 by shanklin
No wonder the SDI share price has been cheery
Sdi share price data is direct from the London Stock Exchange
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