SDI Group – could Covid-19 have been ‘good’ for this digital imaging group?

Already bouncing back from the pandemic, SDI Group has bags of potential to expand, writes Mark Watson-Mitchell.

On Wednesday 9 December this designer and manufacturer of scientific and technology products will announce its interim results for the six months ending this coming Saturday. They should report some encouraging management confidence, certainly good enough to give impetus to its share price.

Previously known as Scientific Digital Imaging, the SDI Group (LON:SDI) designs and manufactures scientific and technology products for use in digital imaging and sensing control applications by the life science, healthcare, astronomy, consumer manufacturing and art conservation markets.

The group has some 11 brands through which it operates.

SDI has a strategy of continuing to grow by developing its own technology advancements and by improving its global sales channels, while also adding to its strength by pursuing strategic, complementary acquisitions. 

On Thursday of last week chairman Ken Ford, a ‘markets man’ of no mean ability, informed shareholders that the group had made a very good start to the current financial year.

Apparently two of the group’s brands, Atik Cameras (which is the group’s largest business) and MPB Industries, secured significant contracts to supply cameras and flowmeters, respectively, for PCR DNA amplifiers and for respirators. Both are benefiting from one-time contracts in this year.

(Polymerase chain reaction, or PCR, is a laboratory technique used to make multiple copies of a segment of DNA. PCR is very precise and can be used to amplify, or copy, a specific DNA target from a mixture of DNA molecules.)

Understandably the need for digital imaging and sensing and control products, particularly in the life science and medical industries, has been robust and there has been strong demand for several of the group’s products for use in the fight against the Covid-19 pandemic. 

Understandably the need for digital imaging and sensing and control products, particularly in the life science and medical industries, has been robust and there has been strong demand for several of the group’s products for use in the fight against the Covid-19 pandemic. 

The group has worked hard to keep its businesses profitable and cash generative in the first half, all have remained operational during the pandemic, with customer orders beginning to show a return to the pre-Covid-19 levels. 

In fact, the group’s management believes that it will achieve revenues and profitability similar to its expectations for the year prior to the ‘lockdown’. In just over a month’s time we will see just how well the group has actually performed.

In last week’s trading update Ken Ford went on to state that “Our business model has proved resilient, and we expect to exit the pandemic even stronger than when we entered it.”

The group has moved ahead in both sales and pre-tax profits over the last few years. From £14.5m revenues in the year to end-April 2018 to £17.4m in 2019, then on to £24.5m for 2020. In the same time frame pre-tax profits have improved to £2.3m, £3.0m, then £4.6m respectively.

For the current year, reflecting the benefit of the one-off contracts coupled with cost-savings that have been made, the group’s brokers, finnCap, are estimating £29.3m of sales and £5.1m of pre-tax profits, worth 4.2p in earnings per share. 

There are 97.75m shares in issue, large holders of which include: Berenberg Investment Management (9.87%), BGF investment Management (8.97%), Herald Investment Management (8.37%), BennBridge (5.16%), Octopus Investments (3.81%), Hargreaves Lansdown Asset Management (3.71%), Dana Investments (3.58%), JP Morgan Asset Management (2.44%), Canaccord Genuity Wealth (1.41%) and Ken Ford (1.28%).

The group’s shares touched 92.8p in late January this year, then fell to 36p in late March. Since then they have been a steadily improving market and are currently trading at around 76p.

I believe that this group really does have bags of potential to expand, not only organically but also by acquisition (at which its management has proved itself as somewhat adroit).

I now set a target price of 95p for shares of the SDI Group.