Small Cap Value Report (Fri 6 May 2022) - SDI

Good morning, thank goodness it's Friday!

Agenda - 

Sdi (LON:SDI) - a positive trading update, and forecasts are raised. This buy & build group is delivering very impressive performance. It also sounds upbeat about the outlook for FY 4/2023. This looks an excellent long-term investment, in my view.

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Sdi (LON:SDI)

173p (up 15% at 09:49)

Market cap £177m

Trading Update

What a pleasure to be reporting on some good news for a change!

SDI Group plc, the AIM quoted Group focused on the design and manufacture of scientific and technology products for use in digital imaging and sensing and control applications, is pleased to provide an update on trading for the year ended 30 April 2022.

Here are the main points -

Subject to finalisation of the accounts and audit, we expect revenues and profits for the year to materially exceed current market expectations1. Sales are expected to be approximately £49m (FY2021: £35.1m). We expect organic sales growth2 for the year to be in excess of 20%, which further builds on last year's 19% organic growth…

Adjusted Profit Before Tax3 is expected to be at least £10.5m (FY2021: £7.4m). We also expect to report very strong operational cashflows, significantly ahead of market expectations.

1. Analysts from our Broker finnCap Limited and from Progressive Equity Research regularly provide research on the Company, accessible from our website, and the Group considers the average of their forecasts to represent market expectations (prior to this Trading Update) for FY2022 being Revenue of £46.65m and Adjusted Profit Before Tax of £9.65m.

How about that for clarity, excellent stuff!

This translates into 7.6p EPS (Finncap), or 7.9p (Progressive). I’ll go with 7.9p, since that effectively comes from SDI itself, via a commissioned research company.

That gives us a PER of 21.9 - expensive in a bearish market, but I think the excellent performance deserves a premium rating.

Acquisitions - 4 have been done since Dec 2020, and today SDI confirms all are doing well.

Ukraine/Russia - no material exposure.

Outlook for the new year, FY 4/2023 also sounds excellent -

…we expect FY2023 to be the Group's best year yet, also ahead of current market expectations.

My opinion - this looks really good, and there must be solid reasons for the company to be so bullish on the new financial year that has just started.

I very much like the strategy at SDI, buying high margin niche businesses, it reminds me increasingly of Judges Scientific (LON:JDG) which of course has been a fabulous share over the years.

Shareholders must be delighted with today’s update, and today’s update seems to remove the risk of a 30-40% lurch down on a profit warning, which we’re being hit with at the moment in increasing numbers.

Overall, SDI gets a solid thumbs up from me, I think shareholders are likely to continue doing well, taking a long-term view.

Fantastic chart, and note the high StockRank too - likely to increase once higher forecasts feed into the data -