anyone got an update on sdi?, page-2

Hi Mockage I own and follow this stock closely.

I am doing some major detailed FA on this stock at the moment - whilst the headline figures weren't that impressive the underlying result showed a lot of improvement (that's when you adjust for forex impact, currency impact etc, and amortisation) - however the major caveat here is that the management has lost a lot of credibility because of their dodgy policy of overstating past profits via capitalisation of research & development costs as intangibles.

Now they are expensing the vast majority of their research & development costs so their recent results are higher quality and more believable, however they still have over $16 million sitting in intangibles in the balance sheet which is very difficult to justify given their recent profits - only time will tell whether this balance has any justification.

The market currently doesn't believe their intangibles balance, which is why the stock trades well below book value and close to net tangible asset value (implying the market attributes zero value to the $16 million intangibles balance).

Management has done well reducing net debt, but they need to because their interest rates are well under the current market rate, and any rollover of large debt facilities would probably incur hefty interest rate increases. SDI has improved their working capital levels but it is still very high and this will affect cash flow again if sales levels begin to jump sometime in the future.

SDI is on the right track. The potential is there and the valuations are cheap, but short-term there are further headwinds such as the rising aussie dollar and the skyrocketing silver price which will hurt. Past results have been rubbery and SDI simply has to deliver a couple of consistently good, quality results to regain the market's confidence again.

If the next result is quality given these headwinds then things might become promising.