ASX:SDI
SDI Ltd
Investment Summary
The fund managers believe that SDI Ltd is facing a temporary sales decline of 1.5% due to adverse currency movements and the phase-out of the lower margin Amalgam product, yet adjusted sales grew approximately 2%, indicating resilience. In their opinion, the company's gross margins improved from 61.5% to 63.5%, forecasting that net profit is likely to remain flat this fiscal year. With the share trading at 9.5x earnings, they maintain a positive outlook. Furthermore, the fund managers note that while revenue met guidance, net profit slightly exceeded expectations, attributed to effective cost control. The balance sheet is solid (<1x EBITDA), supporting upcoming capital needs for the new manufacturing facility, thereby providing funding flexibility. The conservative management's enthusiasm regarding the launch of the new Stela product suggests potential for growth, possibly replacing the declining Amalgam segment.
Commentary From The Managers
Mereweather Capital
28 Feb 2025
$0.83
- SDI Limited reported revenue aligned with guidance, reflecting stable performance.
- Net profit exceeded expectations due to effective operating cost management.
- The balance sheet is strong, with EBITDA ratio below 1x, providing financial flexibility.
- Increased capital requirements are anticipated with the transition to a new manufacturing facility.
- The management team, known for their conservatism, is enthusiastic about the launch of the new Stela product.
- There is a potential for Stela to replace the declining Amalgam segment in the future.
Mereweather Capital
31 Jan 2025
$0.98
- SDI Limited (SDI) announced a trading update prior to releasing full statutory accounts in February.
- Sales for the first half of the fiscal year were down 1.5% compared to last year, influenced by currency fluctuations and the reduction of the lower-margin Amalgam product.
- After adjusting for currency and the Amalgam decline, sales growth stood at approximately 2%, below historical high single-digit growth levels.
- Gross margins improved from 61.5% to 63.5%, suggesting potential for profit to remain flat year-on-year.
- Despite the slightly weaker performance than expected, with a stronger second half anticipated, SDI is currently trading at just 9.5x earnings.
- Mereweather Capital continues to hold their position in SDI Limited due to the factors noted above.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.