Cambridge based SDI Group delivered its preliminary results for the year ended April 2022 yesterday and once again, this buy-build operation delivered in impressive style.
Having previously announced positive trading updates and upgrades to the market, the results actually came out ahead of previously raised guidance and what’s more, the current year which has started well, has also resulted in an uplift to the 2023 numbers.
As regular visitors here will know, I have followed the story closely for many years now and engaged regularly with management, so it was only natural that I caught up with the key players once again.
Firstly though, it is worth recapping on the numbers, whilst also perhaps focusing on a past and highly relevant comment made from Kate Tidbury at Octopus Investments who perhaps aptly sums up the attractions of the company. “SDI has an enviable track record of exceeding expectations. Since we invested in 2015 it has increased sales five-fold and its profits ten-fold through a combination of acquisitions of niche profitable businesses and organic growth, generating significant shareholder value”.
The release yesterday certainly continued that trend with what were truly excellent results as the company once more announced a record year, which saw the numbers 12% higher than indicated at the trading update on the 6th May.
SDI delivers both statutory and adjusted numbers, the latter of which is widely used as the accepted measure by brokers and analysts and which I will focus on here.
Revenue came in at £49.7m representing a big and impressive jump from the prior year’s £35.1m which saw adjusted EBITDA coming in at £13.7m. Adjusted pre-tax profit was also highly impressive at £11.8m well up on last year’s £7.4m, whilst adjusted EPS of 8.7p was also highly commendable. Organic growth was also a huge standout with 22% level being achieved in addition to acquisition contribution.
The share price, in keeping with other small caps, had been coming off previous highs in the market gloom and although it rallied yesterday to £1.56p it continues to look highly attractive and should surely go on to further reward existing and would-be investors with seemingly plenty more growth to come.
The stock trades on a PER of 18 at the current price, but with further earning enhancing acquisitions in the pipeline along with the promising start to the year that has been made, then there should be scope for a further upgrade in due course.
Speaking with Chairman Ken Ford early yesterday morning he sounded both relaxed and cautiously optimistic on the future, whilst being delighted with the results.
ATIK, the Norwich based business, focused on the design and manufacturing of specialist cameras and their end applications has obviously been the star performer again and was a good starting point on the group performance.
Ford says that ATIK, with its Lisbon based arm which is now a main aspect of the business and also provides an invoicing facility, has performed very well and although the current China related OEM business is likely to scale down in due course, there are other potential OEM’s that could subsequently provide for additional business.
The Chairman is certainly quite relaxed to this end and also refers to the other extensive subsidiaries as all playing a part in the ongoing growth story. A case in point is Monmouth Scientific which he describes as having a very strong order book.
Catching up with CEO Mike Creedon, he remains as grounded as ever, describing the results performance as being business as usual and very much a continuation of the process.
Also touching on ATIK, Creedon went into more detail on the current prospects and what may lie ahead as he explained about changes across the space.
He says that the CCD cameras that are currently used in gel documentation along with the Chinese OEM PCR related business will have to move to CMOS sensors in the next few years for various reasons.
This highly effective replacement sensor technology is already used in smartphones and SLR cameras and Creedon says it has come on leaps and bounds in recent years.
He adds that ATIK are already trialling this technology within its cameras and are actively targeting firstly, the gel documentation space, but that there are also a number of other areas that they can actively target too.
The aim says the CEO, is to be one of, if not the front runner in the gel documentation space with this new technology and ATIK has the ability to lead the field.
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With what he describes as a very smart sales director along with a strengthened management team at ATIK, Creedon sounds positive on the prospects going forward and confirms that trials are now taking place with other potential OEM’s, but emphasises that nothing is certain as yet.
Speaking on other aspects of the business we touch upon Chell, which had suffered throughout the pandemic, with its exposure to aerospace. Nevertheless, he says that Chell was still very profitable which perhaps bodes well for this business in the medium to longer term as its market continues to normalise.
Touching on the area of further acquisitions both Ford and Creedon say that during Covid it was extremely difficult to accelerate on that front in the way they would have liked as they have to visit any potential targets, which was near impossible during that time.
The situation has thankfully changed though and both acknowledge they are active on this front with live opportunities where they remain confident on a further deal/s being sealed, in this financial year.
Aside the two architects of the business, I also caught up with outgoing CFO Jon Abel who has done a sterling job in his time at SDI, whilst largely being in the background.
With retirement beckoning for Jon, he remains in the role to ensure a smooth transition for his successor and will be present at the AGM to say his farewell.
Jon certainly fits in with the mould of both CEO and Chairman in that it is all about openness and cautious optimism, which is a continuing and welcome theme.
Speaking with the CFO, we touched upon the Cambridge arm of Synoptics and its performance within the group, particularly regarding the Autocol product that sells in the range of £100k each.
Abel says that the division was in-line with their expectations and that in relation to Autocol there had been sales made in one’s and two’s, although at present it is still early days.
That said, he adds that there is a big market out there with volume potential and although that hasn’t started yet, they are still pretty confident that they have the product for that market.
They clearly believe it is a good offering and they are now developing the next version of that, which Abel says should be in a sweeter spot and should play out well with the Pharma’s.
Touching on Sentek, one of SDI’s earlier additions the CFO says it is doing well, where having seen some impact over Covid things are now picking up.
On the financial front he says that in general sterling weakness is beneficial to SDI, but adds that the rub is the euro weakness, as the big ATIK sales are euro denominated, so it is a bit of a mixed bag although not of any concern.
Expanding on the wider balance sheet situation Abel says that at the end of the year SDI was at a net cash position of £1.1m which was made up of £5m of cash with around £4m of loan.
Expanding, he says that there is roughly £20m that they can borrow and being highly cash generative they have quite a bit of fire power to implement on further acquisitions.
In its note earlier this week broker FinnCap makes no allowance for further acquisitions, so the picture on the numbers front could certainly change as and when anything comes through.
All in all an these were an excellent set of results with the company well on track for a solid full year 2023 performance, despite the wider macro headwinds.
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