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KICKING OFF THE NEW YEAR WITH SDI GROUP - 07/01/22

There has been some very positive and welcome news this morning from SDI to kick off the New Year, with the announcement of a very interesting acquisition, along with further Covid related orders from the ATIK cameras arm.


Forgive the lack of wider introduction to the company, but there is already plenty of previous coverage here on the blog and suffice to say, it remains my longest and largest holding.


The news this morning is certainly welcome and further underpins the building story and continuing momentum, where the purchase of Scientific Vacuum Systems (SVS)looks like another perfect fit.

The business in question resides in a specialist scientific related space and amongst others serves the semiconductor sector, which on its own, looks an interesting area for potential growth.


SDI is acquiring this well established business for a total consideration (including earnout) of £4.9m which equates to £0.7m historic EBITA.

Speaking with CEO Mike Creedon earlier this morning, I was able to learn a little more on this latest acquisition which the CEO says he is both very pleased and excited with.


SVS was first brought to his attention by an intermediary and at first glance Creedon initially felt that it might not really be in their territory. However, on further investigation he saw distinct attractions which has culminated in the purchase.


“It is a really lovely business, run by some very clever guys and it looks very promising going forward where we are looking at targeting investment and really growing the business”.


By all accounts SVS already appears to be trading well and the CEO says that it will deliver an EBITA figure for the current year above the historic £0.7m number highlighted.


Aside the semiconductor sector and additional industries that it serves, the newly acquired business also has a strong presence across the razor blade industry where amongst others in that space it has a strong relationship with a major blue chip player.


Although that customer cannot be named, Creedon says that as part of that association, SVS operates a vacuum chamber that can hold up to 90k blades which are then coated with a specific substance prior to use.


Whilst the acquisition is both timely and welcome, Mike tells me that he is currently very active on assessing further potential buys and is hopeful of delivering on further deals.


In conjunction with the acquisition announcement SDI also revealed that the ATIK arm had won additional firm orders related to PCR machines in the Covid space.


The CEO tells me that this is welcome news and is related to the existing OEM as with the earlier contract announcements across this area.


ATIK has been a real star performer over the last few years for SDI and has diversified away from its original focus on Astronomy and that continues to deliver.


Creedon says that they have also more recently brought in some new and young tech talent into this division which is seeing them looking at some new and interesting areas for the business ahead, which he is hopeful on.


Commenting on the wider group members he says that he is happy with how they are performing where operations appear to be on track.


Having delivered very positive Interim results just last month, todays news is a welcome addition and the company looks well placed to further deliver.


Broker FinnCap has this morning raised its target price to £2.40p where it forecasts full year 2022 revenue of £46m with EBITDA of £11.7m and adjusted pre-tax profits of £9.6m.

That sees an EPS of 6.9p pencilled in, which at this morning’s price of £2.11p puts the stock on a PER of 30, which some may rightly argue is a premium rating.


Whilst that may perhaps deter new buyers, the business and model looks to be in fine shape with a very impressive return on capital employed with positive cash generation.


Perhaps of more importance in the investment case is that SDI’s operations are I largely in markets that are likely to see not only continued but accelerated growth, particularly with its group of niche specialist UK based businesses.


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