Ann: Preliminary Final Report, page-37

But really, we are talking about a net margin in the HY FY19 that has roughly reverted back to H1 FY18 levels - thanks mainly to currency moves, I would imagine. But H1 margins are so slim (due to seasonality), that any little murmur in currency, or in the tax rate (which gets whipped around for all manner of reasons), or in R&D spend (which also impacts the tax rate) - will send the bottom line in all manner of directions.

So, I really am unaware about what fresh news the market is seeing here. I mainly see noise.

@MarsC,

Actually, the net margin in HYFY19 (5.9%, using the mid-point of today's update) is significantly higher than H1FY18 levels (3.4%). [*]


However, that net margin variance on pcp is, in and of itself, not overly relevant; other than in the context of the net margins during SDI's first-half being decidedly skinny which, as you rightly say, means that small twitches in inputs such as expenses, exchange rates, tax rates will whipsaw the bottom line in varying directions.

(Incidentally, in DH2017 it was a mere 2 cent move in the A$:US$ exchange rate that contributed to a 90bp easing in GP Margin and which, combined with modestly higher R&D expense and amortisation charge, caused DH2017 NPAT to fall by a whopping 43% on its pcp. For its part, the market promptly sold the stock down by 25% when that result was announced, to a price of 45c)


So you are absolutely right: the market is an ass for reading anything too meaningful in a company announcement which contains a line "NPAT range of $1.9m to $2.4m."

But there is nothing new in the market behaving in that manner.
As it has forever, the market does what it does.

Which is why I think - like I sense you do - that it is is far more advisable to always assess businesses, not in terms of merely a single-figure, probably-arbitrary, reported accounting construct, but in terms of a much "bigger picture" that incorporates long-term capital flows into, and out of, the enterprise.

At the risk of labouring the point (but I think it is a point worth labouring), it gives me chance to reference an old post:

https://hotcopper.com.au/posts/35101016/single


[*] Actually, as it happens, the indicative net margin for DH2018 is back at the level it was in DH2016; maybe that's what you were trying to point out:

DH Net Margins for SDI
DH12: 8.4%
DH13: 9.0%
DH14: 8.7%
DH15: 8.2%
DH16: 5.9%
DH17: 3.4%
DH18: 5.9% (indicative, based on mid-point of update)