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Excellent news for SDI in yesterday's Budget, particularly since they're based around Cambridge:
Https://www.standard.co.uk/business/budget-2023-life-sciences-lab-space-jeremy-hunt-b1067705.html
Https://citywire.com/funds-insider/news/spring-budget-hunt-offers-life-sciences-a-hand-after-svb-collapse/a2411884
Extracts:
"According to real estate consultancy CBRE, life sciences firms last year signed for around 800,000 square feet of office and lab space in the golden triangle of London, Oxford and Cambridge. It said conditions are in place for that to increase in 2023."
"The government hopes to boost the UK’s life sciences sector with the offer of tax relief for companies that spend 40% or more of total expenditure on research and development, chancellor Jeremy Hunt said in today’s Budget.
The relief is aimed at high-growth, loss-making companies, mostly based across the UK’s ‘golden triangle’ of Oxford and Cambridge universities and the Crick Institute in London."
"Hunt’s other initiatives announced today include providing an extra £10m in funding over the next two years for the medicines and healthcare products regulatory agency to accelerate patient access to treatments."
"The government also plans to boost the supply of commercial development, in particular lab space, to support the needs of research and development and drive investment into high-value industries across England. It also plans to re-establish a railway line between Oxford and Cambridge and in May, a line between Bedford and Cambridge to boost productivity and innovation."
This morning's givernment announcement of a new Science and Technology Framework includes plenty of funding which should benefit SDI at some point:
Https://www.gov.uk/government/news/plan-to-forge-a-better-britain-through-science-and-technology-unveiled
Some extracts:
"£250 million investment in 3 truly transformational technologies to build on the UK’s global leadership in AI, quantum technologies and engineering biology, so they can help a range of industries tackle the biggest global challenges like climate change and health care. This forms part of our commitment to the 5 technologies within the science and technology framework, which also includes semiconductors and future telecoms"
"up to £50 million to spur co-investment in science from the private sector and philanthropists to drive the discoveries of the future, subject to business cases. The government is already talking to Schmidt Futures, a philanthropic initiative of Eric and Wendy Schmidt, about additional support of up to $20 million as part of this work"
"a £50 million uplift to World Class Labs funding to help research institutes and universities to improve facilities so UK researchers have access to the best labs and equipment they need to keep producing world-class science, opening up entirely new avenues for economic growth and job creation"
a £10 million uplift to the UK Innovation and Science Seed Fund, totalling £50 million, to boost the UK’s next tech and science start-ups who could be the next Apple, Google or Tesla"
SDI are presenting live via Sharesoc in London on March 29th:
Https://www.sharesoc.org/events/sharesoc-growth-company-seminar-london29-march-2023/
A few quick thoughts about Chell Instruments further to SlickMongoose's earlier post about them. Chell should experience a sharp recovery as the aerospace sector gathers steam again. But there's been some interesting recent news flow from Chell which I suspect hasn't been posted here, particularly this first story:
Whats emerging in engineering in 2023?
Https://www.chell.co.uk/news/2023/whats-emerging-in-engineering-in-2023
"Chell in 2023
Here at Chell Instruments, 2022 was an exciting year, supporting engineers with many new projects – and a number previously delayed by the pandemic.
2023 looks set to be another exciting year, with many sectors now back to a new-normal and keen to deliver the engineering innovation the world demands.
We ourselves have a number of key new product launches planned for 2023 and are set to be involved in supporting exciting projects in sectors including aerospace, motorsport and pharmaceuticals."
Chell Instruments help German company trailblaze electric jet aircraft:
Https://www.chell.co.uk/news/2022/chell-instruments-help-german-company-trailblaze-electric-jet-aircraft-
Changes to F1 ground effect rules drive demand for Chell Instruments DAQ range:
Https://www.chell.co.uk/news/2022/changes-to-f1-ground-effect-rules-drive-demand-for-chell-instruments-daq-range-
Chell Instruments highlights of 2022:
Https://www.chell.co.uk/news/2022/chell-instruments-highlights-of-2022
"As you can see, we’ve had a busy and eventful year.
And, next year looks set to be just as exciting and successful with a number of new product launches, exciting projects and key collaborations."
A further 182,300 shares only reported after the close as bought at 198p - from 9.00 am when the offer price was 195p. Very, very keen :o))
Good to see someone just bought 33,150 shares at 198p - a full 3p above the current 195p published offer price. Very keen.
New holdings RNS - Danske Invest continue to buy here, and they now have over 8%, with 8.33m shares:
Https://uk.advfn.com/stock-market/london/sdi-SDI/share-news/SDI-Group-PLC-Holdings-in-Company/90255097
Good point SlickMongoose regarding Chell.
Back in December 2019, just before the pandemic, SDI bought Chell Instruments which was a major acquisition at the time and did a lot of business in the aerospace sector. Then the pandemic hit and aerospace disappeared.
Right now global air travel is getting close to where it was in 2019 and at some point aerospace spending is going to increase. I wonder if there's some extra benefit coming to SDI from that?
Keith Ashworth-Lord's Sanford Free Spirit fund have just issued their latest monthly update for Feb'23. In it they have this very enocuraging discussion about SDI:
"Top of the leader board was SDI Group (+22.9%), a position we finished building during December. This rose on the back of our investment thesis being featured in the Daily Telegraph’s Questor column.
It was also a company we visited in person during the month, spending the day at recent acquisition LTE Scientific at Greenfield near Oldham. LTE was founded in 1947 and has built a niche in sterilisation and decontamination equipment, making profit before interest and tax of around £400k a year. With a bit of investment, this could improve materially in the years ahead. SDI’s secret sauce is its ability to make value-enhancing acquisitions at sensible prices often below the gaze of private equity. We were eager to learn more about the M&A process from the standpoint of a vendor. The businesses had known each other for a number of years but it wasn’t until last year that the majority shareholder was ready to sell.
As part of the process, LTE had spoken to a number of would-be acquirers (including, in this case, PE) but regarded SDI as the right partner to support the future growth of the business. This preferred buyer advantage is often quoted as an attribute of Berkshire Hathaway’s success in attracting potential acquisitions."
Danske Bank are still buying strongly - they now own over 8%, or 8.285m shares.
Per SDI's web site they had 6.98m shares at 23/12, so they've bought around 1.3m shares in just over a month:
Https://uk.advfn.com/stock-market/london/sdi-SDI/share-news/SDI-Group-PLC-Holdings-in-Company/90111231
She certainly chooses her employers well as for example both Halma and Acal (now Discoverie) have been terrifically successful:
Https://uk.advfn.com/stock-market/london/sdi-SDI/share-news/SDI-Group-PLC-Board-Appointment/90106675
Tipped in the Telegraph once again - this time recommending SDI as one of two new stocks which readers should buy for their Inheritance Tax portfolio:
Https://www.telegraph.co.uk/investing/shares/two-new-stocks-determined-avoid-stung-inheritance-tax/
"Two new stocks for those determined to avoid being stung by inheritance tax
Questor Inheritance Tax portfolio: these stocks have special appeal for those who want to pay less inheritance tax
By Richard Evans 27 January 2023 • 7:31am
Today we will carry out a small-scale refresh of our Inheritance Tax Portfolio: following a cull of four holdings in October we will add two new ones. We’ll also update on some recently added stocks as well as on one that dates back longer.
New holdings: Premier Miton, SDI
These are both stocks we have already tipped for the general readership, as opposed to those who specifically want shares likely to be exempt from inheritance tax.
We named Premier Miton, the fund management company, as our stock tip of the year on Jan 11 and recommended SDI, which makes scientific equipment, two days ago.
We believe (although one can never be 100pc sure) that both qualify for “business relief”, the tax break that gives rise to inheritance tax exemption, so we add both to our IHT Portfolio now.
Questor says: buy
Tickers: PMI, SDI"
If you read the article it's Eric Burns of Sanford DeLand Asset Management who's recommending SDI - Questor is merely summarising his views by saying Buy at the end.
I've been in SDI since it was 10p or so some years ago. It's a superbly managed company. It's obvious comparator share JDG are currently on a P/E of 23, a multiple almost 25% higher than SDI's. This despite JDG's m/cap being almost three times SDI's, which makes it much harder for JDG to "gallop" on a growth multiple than SDI.
SDI should be priced at 210p merely to equate to JDG.
Yes read comments from DT readers. They real abuse Questor saying do the reverse of what he says. They claim most of his share tips "tank" and avoid at all times. So be nervous as a SDI investor. My experience of Questor is he is correct 50% of the time,so not certain yet to invest in SDI,but expect sp to dip soon.
Dont really disagree with this article but the telegraph has written some absolute garbage in the past
Quality company, although exactly the same company as it was before the share tip. Wouldn’t have minded making a few more quid on the back of the Telegraph herd though.
..Maybe the reason for todays attention, I have never seen this many trades on this share within such a short timescale.
Great to see SDI getting some mainstream press attention. The article is essentially an interview with "Eric Burns, of Sanford DeLand Asset Management, whose Free Spirit fund recently bought a stake in SDI".
In case anyone can't read it as it's subscriber-only, a few tasty extracts - 300p is a nice round figure target:
“It has tended to make two acquisitions a year and so far it has not made a mess of any of them. On that basis I estimate its value at around 300p a share.” The current share price is just 153p.
Burns says he has also calculated a value for SDI on the assumption that it does not make any more acquisitions. That estimate is around 220p a share. The discount of the current share price to this figure, never mind to 300p, gives him a margin of safety should anything go awry at SDI.
But it’s not just these numbers that offer reassurance about the company and its acquisitive business model; we can take comfort too from the way it goes about choosing and then running the businesses it buys.
“SDI is considered to be a ‘good acquirer’,” Burns says. He takes as an example LTE, a scientific equipment maker it bought last year. “We went with SDI’s boss to see LTE last week because we were keen to examine the process by which it had decided to sell to SDI,” he adds.
“We heard that the two businesses had known each other for some years and that LTE, which was family owned before the sale to SDI, had been looked at by private equity buyers in the past.
“LTE was very keen to deal with SDI because of the reputation it had as a buyer after its acquisition of other businesses. It doesn’t rip the heart out of them – there are no mass redundancies, no accountants turning up to slash costs. The businesses it buys are left to carry on as before, with their existing brand and staff.”
“It buys companies that are already profitable but normally too small to attract much interest from private equity,” says Burns. “This means it can negotiate keen prices, typically just four to six times earnings on the ‘Ebit’ measure.”
In other words, the acquired business pays for itself in just a few years, after which its cash flows can help the company fund later acquisitions. This avoids the need to take on big debts or to “issue new shares like confetti”, Burns says, so earnings are not diluted for existing shareholders.
Its history of successful acquisitions has helped it to grow sales by 36pc a year over the past five years and earnings by 40pc a year.
“It’s a nice, steady growth business,” Burns says. “People don’t appreciate its value because brokers can’t account for future acquisitions. It’s a long-term buy and hold stock.”
Questor says: buy"
Nice - makes up for a “Times” sell recommendation that I walked into the day before its publication. Love SDI but profit to be made; cashed in.
SDI are now on a P/E of 16.9 for the year ending in only three months' time. We know from repeated examples that forecasts for SDI are usually undercooked, and SDI have a nice habit of underpromising and overdelivering.
Even if SDI "merely" perform in line with expectations then they will be on a very reasonable rating for a growing company in a fast growth sector.
It's worth noting - with the final Atik receipt - that H1 delivered £6.5m adjusted PBT - almost 55% of the year's forecast £11.9m.
And H1 delivered 5.02p adjusted EPS - again 55% of the year's forecast.
So even a mediocre H2 would likely enable SDI to meet expectations. Plus the substantial earnings-enhancing acquisitions of both Fraser and LTE in August and October will contribute fully to this H2, which should further benefit the results.
SDI's rating is hardly challenging in itself, let alone in comparison with sector comparator JDG's, which is much higher. I note that JDG are up today after their trading statement noting that they're "modestly ahead" of expectations for the year to December'22. Most importantly, order intake "picked up strongly in December with the relaxation of China's Covid-19 restrictions", which hopefully bodes well for SDI too.
With the humungous number of Covid infections in China (and likely to grow with the Chinese New Year travel spreading it further) it occurs to me that perhaps there's even a chance of further Chinese OEM orders for Atik.
Whether realistic or not, that's far less important than the apparent return of normality and growth to scientific instrument/equipment markets.
Sold out today...three big trades
The CFP SDL Free Spirit® Fund, run by Keith Ashworth-Lord, has this morning sent out their January 2023 Fact Sheet. There's a rather nice section as follows:
"For some months we have teased that we have been building a new holding, which we can now reveal as SDI Group (market cap: £154m), a profitable and growing business operating in the niche life science and technology space. SDI is one of a small number of successful buy and build businesses on the public market where a disciplined approach to acquisition criteria – not least a valuation target of 4x-6x EBIT – has been incredibly accretive to shareholder value over time. SDI has built a strong reputation as a good acquirer meaning it is sometimes able to make purchases even if it is not the highest bidder. SDI has made a total of 17 acquisitions since 2014, approximately two per annum, of niche businesses typically making pre-tax profits in the hundreds of thousands per annum, well below the radar of other purchasers – this is the secret sauce."
Just caught up with the Investor Meet presentation. A few points of note aside from comments on the numbers:
- they've know LTE for 6 years prior to acquisition. The late founder's family had no interest in running the business and wanted to sell. Acquired on a low multiple, with high revenues but relatively low profitability. SDI are confident they can increase profitability, particularly via working together with Monmouth and Safelabs as regards sharing equipment servicing etc
- Frasers were brought to SDI by Westcott Corp Finance, who were previously Safelab's advisers. Growth here is likely into the USA and China, also with a German office
- a number of SDI's businesses have trading back-ended/weighted into H2, which should bring "healthy sales". Mike was positive about meeting expectations despite the difficult global economic conditions
- are SDI pursuing deals/acquisitions in the USA? Yes!
Also interesting to see our relatively new CFO take up an NED position at Porvair today:
Https://www.investegate.co.uk/porvair-plc--prv-/rns/trading-update--notice-of-results-and-board-change/202212090700041382J/
Perhaps there might be some nice business opportunities for SDI here?
"Porvair is a group of specialist filtration, laboratory and environmental technology businesses. Its businesses design and manufacture a range of bespoke consumable filtration products that are used in a range of niche filtration markets. It operates in three divisions: Aerospace & Industrial; Laboratory; and Metal Melt Quality."
SDI are now on a current year P/E of only 16 at 149p based on consensus 9.3p EPS. I gather that this is now around a 35% discount to JDG.
It also looks anomalous relative to many other valuations out there. Completely randomly, yesterday I looked at ABDP, which is on a P/E of 30.5 despite relatively pedestrian forecast EPS growth. FRP are on a P/E of 22 despite its EPS being almost unchanged from 2021 through to 2024 forecasts!
This despite SDI's almost 180% EPS growth in just three years to that 9.3p EPS. I would hope that current forecasts are conservative as usual. And as always they don't include any benefit from further acquisitions.
Finncap note that cash flows should enable SDI to have around £20m available for acquisitions, which they state could bring in around £3m of EBIT based on past multiples.
far from being a bad RNS. Some margin reduction but this was expected in such inflationary environment. However, revenues and top line continued to grow. a rare quality stock. strong buy