Ann: June 2016 Trading Update-SDI.AX, page-3

"...about expected i say, not fantastic but not bad, cheap company, maybe some growth available and pays dividends while you wait."

@suhm.

Growth at the top line has never been the problem for this company: Revenue has grown by a compound average growth rate of 8%pa for the past 16 years that I have analysed the company.

Rather, it is gross margin that has been the issue.

Probably in large part due to the five-fold rise in the silver price between 2004 and 2012, Gross Margin fell from levels averaging 67% in the mid-2000s, to 57% in 2012. The result of this was that, despite excellent control of fixed cost overheads (the ratio of Cost of Doing Business - to- Sales ratio declined steadily over that period), earnings declined quite significantly over that period.

Subsequent to 2013, however, SDI's Gross Margin had been recovering slowly (to levels in the low 60%'s). Then in DH2015, it hit a near-record 67%, and it is unclear to what extent this was due to the lower silver price finally working its way into the company's Cost of Goods Sold, or whether it was due to traction from the sale of higher-margin, non-amalgam products.

So it will be interesting to see - when the company reports its 2016 full-year results - if the strong performance in the June half has been due to ongoing strength in GP Margin, or whether it has been due to faster fractionalisation of fixed cost overheads, or both.

For whether it is more of the former, rather than the latter, will have significant bearing on how the market views the stock, i.e., whether investors continue to perceive SDI as a mere bit player with no real competitive advantage in the context of the global restorative dental industry (in which case the current valuation multiples of 10x P/E and 5.0x EV/EBITDA are probably fair and reasonable), or whether investors come to view the business as a genuine global growth business with a differentiated product offering in a market place that is niche, but still very large compared to the current sales base of the company (in which case valuation multiples at least 50% higher than they are today will be seen to be more appropriate, I strongly suspect).