There is an old adage often repeated in financial circles, that you should never fall in love with a share you hold.
While it is something I certainly concur with, I do confess to having been extremely smitten with SDI Group, which has been a firm favourite with me now since the beginning of 2014.
During that time the company has, under the stewardship of Chairman Ken Ford and CEO Mike Creedon gone from strength to strength, gaining significant institutional and private investor awareness as it has delivered positively on a number of fronts.
On a personal level, the shares have delivered for me an incredible 800% gain from my first entry point in 2014, when the shares languished at just 8.5p.
For anyone who is unfamiliar with SDI but interested in taking a closer look beyond this article, I am also posting an earlier piece on the blog relating to the company that I penned a few years back and which provides for a glimpse of just how impressively this story has evolved.
Of course, that story is ongoing, with the Group having moved to another level and being ideally placed to continue the recent momentum and increase revenues and profit in the years ahead.
Without doubt, I have immense respect for both Ken Ford and Mike Creedon and the team that they have assembled over more recent years and where like other businesses it has recently had to contend with the issues revolving around Covid, the performance provides for further evidence of their excellent navigation.
The most recent news from the company came just last week with a super and well timed Trading Update ahead of the interim results that are due out in December and which saw the shares respond positively, closing on Friday 23rd October at 74.5p.
SDI as most will already know is a Cambridge based buy-build operation that encompasses profitable and growing businesses that design and manufacture scientific and technological products that to a large degree operate in and across the life sciences, healthcare and sensor control markets.
In the update, the company announced that it now expected to report that sales and profit for the current financial year will be ahead of the previously revised forecasts that were installed in the wake of the onset of Covid.
This effectively sees the original expectations from FinnCap reinstated, which calls for full year revenue of £29.3m and adjusted pre-tax profits of £5.1m with EPS of 4.2p and sees the broker upping the target price to £1.10p.
Although and pleasingly there are positive signs of most aspects of the group returning to normality which provides underlying confidence moving to next year, it is the excellent performance from two specific arms, namely ATIK Cameras and MPB Industries that have driven the upgrade, with specific business won relating to the Covid issues.
MPB has benefited from the ventilator programme and Ford says that although not a large, it is actually a great business.
ATIK meanwhile has more recently provided its expertise for scientific imaging by providing specialist cameras for qPCR instruments that are used in the testing procedure for Covid.
The camera interacts with the instrument and plays a key role at the amplification stage of the testing process, recording the fluorescent signals of the viral genetic material, with the grey scale version of the image being analysed to generate either a positive or negative result.
Steve Chambers head of ATIK has commented “Drawing on our scientific imaging expertise, as well as our extensive research and development capabilities, we’ve developed the VS255 and VS825 cameras to offer Original Equipment Manufacturers (OEMs) and clinical diagnostic laboratories high-performing tools to facilitate the accurate diagnosis of active COVID-19 infections.”
Thus far, it appears that thousands of cameras have already been installed in qPCR instruments around the world, where in turn each processes thousands of samples each day.
In wake of the update from SDI, I again caught up with both Ken Ford and Mike Creedon for some further comment on the back of what was very positive and welcome news.
It is customary with both to set a realistic and cautious tone, with a welcome absence of some of the more over exuberance associated with some AIM stocks and that has certainly stood investors in good stead here.
Speaking with Chairman Ford, he commented that he was both pleased and feeling optimistic regarding progress that has been made and the longer term picture remains on track.
Commenting on the specific ATIK covid related contract he says that this was very substantial and that it runs through to the early part of next year.
Despite the company already stating that this was a specific one-off contract, it seems quite possible that this could pave the way for further work with OEM's in the future.
On other aspects within the group he also mentions the relocation of one of its previous acquisitions in the shape of Fistreem, which he says has gone extremely well and is proving to be another great buy, as that business is performing positively.
As a result of that relocation, Fistreem is now housed within the Cambridge based Synoptics arm,the latter of which, until more recent times accounted for the bulk of SDI's business.
Despite boasting some world class technology spun out of Cambridge University this division of SDI had failed to make much progress on growing revenue and was at best a break-even business.
That has changed though, as Ford says that having streamlined the business along with some strategic changes it is performing well and importantly now delivering on the profit front.
Creedon echoes this and adds that Synoptics has turned the corner after many years of heartache and says that this is solely down to the direct input of Kate George and Clare Hough who have really driven the business forward.
To gain some insight into the rejuvenation of Synoptics I was also fortunate enough to speak with one of the double act in the form of Clare Hough who told me that the secret ingredients consisted of getting a firm grip on costs and overheads, whilst bringing forward new and innovative products along with pursuing alternative revenue streams.
That sounds like a decent recipe and the results have obviously been positive, Hough confirming that the division is continuing on its more recent profitable line and although there was inevitably some disruption such as in the US as a result of the pandemic, things have begun to pick up.
Within that business there are she says some very high end systems that they provide and which are used in the likes of medical research facilities across the world.
Synoptics itself however consists of different arms, that also includes Fistreem as mentioned and which she also says has integrated well into Cambridge and is now growing.
As for the business of Fistreem, this provides clean water systems for labs, along with specialist vacuum ovens that are also tailored for lab use, where while being of a high quality, other key selling points are ease of use and a small lab footprint.
Hough also adds that the Synbiosis division appears to have seen an increase in business activity more recently, where it develops and manufactures a range of automated colony counting and zone sizing products for the microbiology laboratory in food, water, pharmaceutical and clinical applications.
As a Cambridge based operation that had for years failed to live up to its early potential, it is refreshing and encouraging to see Synoptics being transformed and looking itself able to contribute to the growth story.
On the acquisition front, Both Ford and Creedon echo that this remains firmly on the agenda and it appears that there are some potentially exciting opportunities for them to pursue where they have been active on the targeting front following the easing of lockdown.
Any purchase made though, is they say likely to be funded from SDI's own resources as they are mindful of dilution to shareholders and Creedon says that as the businesses in the group are generating cash, it is something that can be put to good use.
Some debt with borrowing rates being so low could also be considered as an option says Ford, but again, being balanced on this he says he has no wish to see the business saddled with a high level of debt.
Rather, it appears to me that SDI will continue to deliver in a similar vein as with previous acquisitions and will not over reach, buying something at a decent price and which is already throwing off cash.
Although potential timelines on getting something over the line are not revealed, it seems feasible to me that we could see something delivered by the end of the calendar year.
A strict criteria remains in place however and both acknowledge that they have rejected a fair number of would-be prospects along the way and Ford maintains that they will never just go out and buy something for the sake of buying.
Despite the impressive achievements to date with the important element of organic growth tying in with the additions to the group, Ford continues to talk in terms of SDI Group as being a £100m plus company and going further sees no reason why it can't be considerably larger moving forward.
Thus far, the team here has delivered as planned and with a cautious, no nonsense, but ambitious approach looks set for further success.
For those that are interested, here is a link to previous piece I posted on SDI from back in 2017: https://www.cambridge-news.co.uk/business/technology/cambridge-company-watch-sdi-unveils-12503285
Comments