SDI Group, the Cambridge based company focused on scientific products and services delivered its Interim results this morning, which in what have been such difficult times for all, represented an excellent performance.
As a long-term holder of the shares, the results were particularly pleasing, as not only have recent additions to the group made their mark, but also more established businesses too, which saw impressive organic growth being achieved.
Looking at the numbers first, revenues increased by 23% to £14.1m in the first six months resulting in a 44% jump in adjusted EBITDA to £3.9m. Adjusted pre-tax profits also recorded a significant increase of 52% to £3m, which in turn saw adjusted EPS of 2.47p.
Excellent cash generation was also a standout, which saw net debt falling by £3.7m to £0.3m as the company in part, benefitted from a significant OEM order at ATIK cameras.
The underlying organic growth figure achieved was just short of 8% with marked performances from both Atik and the more recently acquired MPB, with both benefiting from business related to the pandemic.
As is customary with SDI, I was again fortunate enough to catch up with Chairman Ken Ford for a few words on the back these results and he sounded both pleased and positive on the full year delivery and future prospects.
Ford said that all the businesses within the group are cash generative and despite the continuing wider economic uncertainty the board remains focused on further building the group which is both tightly run and cost control conscious.
In speaking about the various parts of the group the Chairman said that the specific large contract concerning ATIK through a new OEM was related to the Asia region which would appear to further endorse this division's long term growth prospects.
Additionally, Ford points out that ATIK continues to sell into the Astronomy market and has benefitted from the expansion at its Lisbon based operation that supports the main thrust at Norwich.
Other arms are also performing positively, where he says that Sentek is very busy along with Astles, the latter of which is going extremely well and has just won a new order.
The more recent progress from the Cambridge based Synoptics continues and is, he adds, also going very well having been turned around from a flat lining to growth position.
Within that business sits Synbiosis which designs and produces colony counters for use in food, environmental, pharmaceutical and clinical laboratories and this business has recently recorded a record month of turnover in October.
One of the more recently released products from Synbiosis is its Autocol colony counter product which priced at up to £100k has been selling well and highlights the technological expertise of the operation with its roots as a spin out from Cambridge University.
Applied Thermal Control is also touched upon where Ford says that after a slow period business is building there again where the operation is now all under one roof with improvements being realised and excess buildings now let.
With all the businesses sounding CEO Creedon’s mantra of being cash generative, SDI is well on track to deliver full year numbers in line with broker FinnCap’s recent forecasts.
The most recently announced acquisition of Monmouth Scientific which is a market leader producing and marketing clean air solutions should also contribute to the group now brought under the umbrella and that is currently enjoying a strong period.
Ford believes it is a good buy and says that Monmouth which derives most of its revenue from the UK is keen to expand its geographic reach, particularly in the US.
SDI already has, he says, an office in the US based in Frederick (Maryland), relating to Synoptics and Ford tells me and there is scope to utilise that to leverage Monmouth’s products which could provide for a significant growth opportunity if successful.
Synergies and cross selling across other aspects of the business are also constantly looked at with all aspects of the business interacting when possible to explore growth opportunities.
Having just concluded what is another another sizeable acquisition I enquire as to whether there is anything else in sight on this front.
Ford says that there is nothing imminent but they have witnessed an uptick in companies that may be looking at being acquired, which is perhaps down to concerns on changes in CGT.
Looking beyond the very near term Ford expects SDI to conclude at least one more acquisition within 2021, although he reiterates that they will never go out and buy something for the sake of it.
To date, SDI spearheaded by Ford and Creedon and increasingly backed up by a strengthened board has delivered impressively and executed on some excellent purchases and Ford believes they can continue that trend and sets his sights now on becoming a £200m market cap company with a further growth in revenue and profits the aim.
For now, broker FinnCap is expecting full year revenue of £32.8m with EBITDA of £7.4m and adjusted pre-tax profit of £5.5m with adjusted EPS of 4.5p.
Net debt following the Monmouth acquisition is expected to come out at £4.3m but that is then expected to be all but eliminated in full year 2022.
The shares which from a personal perspective have a been an outstanding performer representing a return of 11x on my first purchase may arguably look fairly priced at the current 99p where it trades on a PER of 22.
However, the businesses are well placed to further deliver and Ford isn’t concerned on Brexit, deal or no deal as SDI doesn’t do much business across Europe in terms of the big picture.
The shares for now remain a strong hold for me, with the prospect of further notable gains in the medium to longer term.
SDI GROUP PLC will be holding a presentation on their interim results for the six months ended 31 October 2020 on 11th Dec 2020 at 4.30pm - info@investormeetcompany.com
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