Not for the first time, I’ll open up with the gambit that SDI Group has been one of my longest and most successful of investments that I currently hold.
No smugness on my part intended or for that matter complacency, but rather the message that, identifying something with potential at an early stage and hold as the story develops, can mean the rewards can be truly sizeable.
Having already enjoyed a good run of news and returns over the last few years which has recently seen the shares residing around the £1.20p mark, SDI this morning released what is best described as an outstanding Trading Update to the market.
The importance of the content in the release cannot for me be overstated, as Chairman Ken Ford and CEO Mike Creedon as many will know are not renowned for being overly exuberant, with caution very much being their mantra.
In this morning’s update SDI says that it now expects revenues and adjusted profits before tax for both full year 2021 and 2022 will exceed current market expectations.
Within the various parts of the group, the Norwich and Lisbon located business of ATIK which has seen expansion over the last year is clearly the main driver of the significant upgrade where it is now seeing follow on orders for its cameras related to COVID-19.
This, as previously mentioned here, relates to PCR DNA amplifiers which is a fast, effective technique that is used to amplify and copy small segments of DNA.
That, understandably saw strong demand as the pandemic unfolded and given the ongoing situation around Covid is likely to remain the case for some time yet, as evidenced by ATIK witnessing further interest.
As a result of the news, Broker FinnCap was quick off the mark, raising its target price to £1.80p as it has now lifted revenue for the year in progress (2021) to £34m with adjusted pre-tax profits increasing to £6.7m and EPS at 6.7p.
Most importantly, there is a clear indication and expectation for full year 2022 with revenues pencilled in at £42.1m providing for adjusted pre-tax profits of £8.8m and EPS moving to 7.1p, whilst there should also be a positive move to a net cash position of more than £3m.
These numbers represent significant increases with the pre-tax profit 2022 number being some 50% ahead of previous guidance.
Without doubt the team has navigated the Covid headwinds extremely well and clearly continues to do so with a strong complementary, yet diverse mix across the group knitting together to provide increasing prospects of growth for the longer term.
As has become customary at such times, I have again caught up with both the Chairman and CEO for a few words, with Ken Ford sounding delighted with the current picture and remaining cautiously optimistic for the longer term.
Commenting on today's release Mike Creedon felt it was a really good update to the market expanding that ATIK’s extended business is predominantly focused on the Asia region. Additionally, he said that all the businesses within the group are doing well.
Since my last update here SDI has also very recently announced a small acquisition that was executed at an excellent price, further demonstrating the continued ability of the company to add value enhancing deals into the fold.
Although a very small purchase the CEO says, “Uniform engineering is a £1.1m business that employs seventeen people, but we want to expand and grow the operation. It will be run by the senior management of Monmouth and the plan is to make some capital investment into it.
Within the group we have four businesses that use metal fabrication which is part of the virtual chain, so it makes absolute sense to use our own facility, whilst also extending its reach”.
Although not expanding on other aspects of the group to any extent, Mike Creedon did single out the Cambridge based Synoptics for me, which as I had previously mentioned has turned an important corner after years of stagnation and was making good progress.
The CEO sounds particularly pleased with what has been achieved here of late and sees it as being something of a star, with praise for the team headed by Kate George and Clare Hough.
Within the various Synoptics products there is the fully automated AutoCOL colony counting system that enables walk-away, accurate traceable colony counts every time.
Commenting on this aspect of the business, Kate George tells me that despite not having the usual platforms to launch the AutoCOL due to the travel restrictions in place the AutoCol has nevertheless generated sales, along with interest from 4 of the top 10 Pharma companies.
She explains that the AutoCOL enables users to both measure and sort 100 plates in less than 45 minutes, a task that usually takes a microbiologist several hours.
Across the whole of the Synoptics arm Kate George adds that all of the divisions have had a strong year despite the pandemic with Fistreem enjoying a particularly strong year after its successful integration and sales are above the original forecast.
SDI, in what have been difficult times for many, has demonstrated that it can not only bring in new businesses to drive growth, but importantly deliver key organic progress making for a healthy combination.
On the acquisition front, the CEO says that they remain very active, with further targets in the frame where no doubt the usual discipline’s will be applied.
As I write, the shares are 25% up on the day at £1.51p and trade on a forward (full year 2022) PER of 21. That looks attractive to me given that the upgrade on numbers has come so early and the prospects of further progress from other operations, as we ease forward and restrictions are eased.
Additionally, it looks highly likely that at least one more acquisition could be brought into the fold during the current calendar year, which would be earnings enhancing and lead to a further increase in expectations.