I thought it was a quite stellar result, which blew my expectations out of the water:
Because of the uncertainty surrounding the amalgam, exchange rate movements, and the Brazilian business, I had been running with two scenarios in my financial model, in relation to the second-half:
1. LOW: EBITDA = $7.2m and NPAT = $3.5m
2. HIGH: EBITDA = $7.7m and NPAT = $3.8m
These compare with the reported result:
ACTUAL: EBITDA = $8.4m and NPAT = $4.5m.
So the result left even my bullish expectation for dead.
(Which just goes to show, once again, how inept a financial modeller and forecaster I am.)
There were several notable positives specifically in the second-half result:
- After EBIT for the first half (the seasonally weaker half) was down 45% on pcp, for second-half EBIT was 22% higher than pcp; as a result, full-year result was flat on pcp.
- the Gross Profit Margin of 62.6% which is at a decade-high (pcp GP Margin was 59.9% and H1 GP Margin was 59.3%)
- a $1.2m reduction in working capital vs 30 June 2017, despite higher Revenue
- Net cash balance of $6m (c.f., $1.6m @ 30 June 2017)
- Acceleration in sales growth of SDI's largest product categories: In local currency terms, Aesthetics sales (39% of Group Total Sales) grew by 9.8% vs pcp in the second-half (c.f., 8.7% in first-half) and Whitening product sales (26%of Total Sales increased by 1.8% in second-half (c.f., zero growth in the first half)
Of course, there were not only bouquets in the result.
A few brickbats were present, too:
- US Revenues continue to go backwards. This is a concern because it is a big market for SDI (~24% of current Group Total Sales)
- Brazil is still not performing, and now there is some reference to setting up some sort of a manufacturing facility in Brazil
- While at a modestly slower rate, sales of Amalgam products continues to fall (down 11.4%in second-half on pcp, compared to 14.3% fall in the first-half). Amalgam now represents 26% of Total Group Sales, down from 45% five years ago. So its drag influence on the top line is diminishing each year.
- Equipment Sales (9% of Total Sales) were down 3% in the second-half, compared to 1.9% reduction in the first-half
Wrapping all this up, I reckon SDI will generate EBITDA of around $14m this year, and EBIT of around $10m to $11m.
The net cash position this time next year will be around $8m
Which means that, at yesterday's closing price, the stock is trading on 3.5x EV/EBITDA and less than 5x EV/EBIT.
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