Pinned straw:
Held: 3.83% IRL and in SM
@Rocket6 fully agree! The chart position is playing out as well, with price falling nicely to $2.85 ... I forgot to change my unfilled order from yesterday to Good for Day and annoyingly had it fill at $2.91 today.
The risk to SDR is probably more about sentiment compression and multiple pressure in the short term due to the war, rather than any specific issues with the business.
@Rocket6 @jcmleng @Batman @Foxlowe I agree that $SDR is looking good here.
Of course, across software, the market has fundamentally rebased terminal values, and I think that reset is likely to persist; at least until individual companies (or specific business models) can earn back the right to higher exit multiples.
Agentic AI has shifted the paradigm from:
“capital-light, cloud software wins by default”
to:
“nothing is structurally guaranteed, show me the cash flows.”
On top of that, $SDR is pre-profit, so in a world where inflation has re-emerged and interest rates remain higher for longer, it is disproportionately impacted with the bulk of its value still tied to future cash flows.
Finally, as a travel-exposed business, there is an additional Gulf War overlay. As we saw during COVID, travel demand doesn’t disappear, but it reconfigures, often toward domestic or perceived “safer” destinations.
Taken together, $SDR has effectively been hit from all angles.
Operating Leverage - I Have a Different Perspective
Where I diverge somewhat from @Foxlowe is on operating leverage. Yes, $SDR remains in a heavy platform investment phase, and free cash flow has been impacted by ongoing product development, and the expansion of its global footprint (leases for hubs and sales offices).
However, I think operating leverage is already emerging, which was a key reason I initiated a position last year.
Cash flows tell the story. First annual cash flows.
Looking at annual cash flows:
- Operating Cash Flow has shown a clear and steady progression toward positive territory
- Investing Cash Flow (excluding movements into deposits) has increased only modestly
Importantly, growth in capex has been materially slower than growth in operating cash flow.
This is reinforced by capex (PPE + intangibles) as a % of revenue:
- FY22: 20%
- FY23: 16%
- FY24: 13%
- FY25: 12%
So while SDR continues to invest in its platform, it is doing so using a declining share of revenue and, more importantly, a declining share of operating cash flow.
Will FY26 continue this "trend"? I believe it will. And we can push out the cash flow analysis based on 1H results another year, as shown below:
Based on 1H FY26:
- Investing cash flow did step up
- However, the increase was still only ~33% of the uplift in operating cash flow
On that basis, I think it is reasonable to conclude $SDR is demonstrating operating leverage on a cash flow basis.
So What - Portfolio Context and Investment Timing Considerations
I currently hold a relatively small position in $SDR (around 4% RL), and have been weighing whether the prospective upside from here is sufficiently compelling, particularly relative to other high-risk holdings, to justify reallocating capital. What gives me pause is the degree of near-term uncertainty, especially around how current conditions may affect new property signings and transaction revenues through the second half of FY26. These factors are likely to shape market perception when the FY26 result is reported in August.
At a macro level, the travel backdrop is clearly becoming more complex. Middle East holiday and transit demand has fallen sharply, with knock-on weakness across the Eastern Mediterranean and North Africa. At the same time, regions that rely on Middle East hubs for connectivity, including parts of Asia and APAC, are experiencing disruption. While flights can be rerouted, this is creating capacity bottlenecks and higher airfares, which in turn are likely to dampen long-haul demand.
That said, this is not a uniform downturn. Some regions are clear beneficiaries of demand reallocation, particularly Western Europe and the Americas incl. Caribbean. More broadly, rising fuel costs and heightened security concerns may shift travel behaviour toward domestic or shorter-haul trips, rather than eliminating demand altogether. The key question for $SDR is how these shifting patterns translate into Gross Booking Value and transaction volumes across its network.
The downside scenario is that these pressures compound. If elevated costs and geopolitical uncertainty begin to weigh more heavily on consumer behaviour, there is a risk of softer global travel demand, particularly for long-haul routes. In a more adverse outcome, such as a broader macro slowdown or recession, this could flow through to lower GBV and potentially slower net property additions, which would directly impact SDR’s growth trajectory.
My sense is that the current share price is already discounting a meaningful portion of these risks, to the point of an over-reaction based on fundamental. However, it is not yet clear that the full extent of the disruption has played out. The longer the conflict persists, the greater the likelihood that what are currently short-term, reversible effects become more embedded and longer-lasting.
On that basis, I am not inclined to add to the position at this stage. There is a credible possibility that further volatility lies ahead, and that more attractive entry points may emerge if near-term earnings or sentiment weaken further.
That said, I am seriously considering that this "current episode" will offer a great opportunity to acquire a larger position in $SDR at a very favourable price.
Disc: Held (RL 4%)