external headwinds mask a great growth story, page-33

@MarsC I agree with your assessment on five out of your six points. Management pay I would say is very healthy in terms of the size of the profits SDI has historically generated, and in the situation of the temporary joint-CEO situation, paying two CEO’s looked to be ‘having a laugh’. The move of our founder to Chairman should see a reduction in Executive pay and if profits follow the trajectory they appear they will, in a few years, pay will certainly be more properly described as modest.

My personal view on R&D and the ‘moat’ is that there wasn’t much of a moat to this business, amalgam is not a commodity product, but not far off it either. But some of the R&D has developed lately into properly market leading products. Because of the aforementioned reluctance of dentists to switch to a new product, the payoff period has been slow in respect of this important IP. My sense is that the business is entering a period where a ‘virtuous circle’ will come into operation. The historic R&D expenditure will begin to pay off in an ever-increasing way (higher revenues & further margin expansion), leading to R&D becoming an ever smaller expense in relation to the size of the business. I expect the level of free cash flow that the business will generate will expand substantially over the next few years.

The temptation of course is to look at the sharp price rises recently and be reluctant to buy due to such a sharp recent rise. But this is a situation that really warrants trying to ignore the share price until you’re concrete on your own assessment of intrinsic value. Perhaps easy for those of us that are exposed with a meaningful chunk of our capital, but if you come at this with fresh eyes & arrive at anywhere near the 5+ year outlook I have, the business still looks inexpensive to me at current prices - Eternalgrowth