external headwinds mask a great growth story, page-30

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Yes, if the trend continues, it does look as though superior returns on capital are in the wind. The question for me is, are we seeing a structural change, or are we seeing cycles at play?

In terms of do people go to the dentist for a filling more when the economy is doing well?  To me the industry is not that cyclical. What you are seeing is increased sales due to increased investment in sales team.  More on this below.

The business has been around for a long time. Is something changing permanently, or cyclically?

I think we have seen a business that has "built" the bones of a great business but is only just starting to realise the profitability of that business.  As I said in my last response this industry has a very large lead time from product development to sales and then sales conversion.

Is this a "turn around" story, or a business that is improving through evolution.

Having followed the business for quite some time I think it is an evolution.  Certainly the margins were always in the business.  They had the stop start with product development of whitening in the early 2000's however their biggest issue was always that they couldn't afford the top overseas sales executives that were needed to grow sales offshore.  That changed in about 2013 when you can see their selling and admin expenses go from:

2013 $23,447
2014 $28,545
2015 $29,000

While an increase of $5mill might not sound like much its worth keeping in mind that this was more than their entire NPAT in 2013 ($4.7mill).


Or to cut to the chase, what can SDI do that its competitors cannot easily replicate?

Its mainly operational leverage thanks to the investment in the sales team.  Would competitors spend many number of years developing the products, operations, sales capability earning single digit ROA and ROE to get themselves to a stage where they can flood the market with material to drive the profitability out of this industry??  I guess they could but why wouldn't they just buy SDI out - $200m / $300m would do the job.