lol at "the beard is the physical manifestation of being a microcap investor over the last two years!" - so true.

I agree with that @JPPicard - there are a lot of moving parts to get your head around with SDI.

They'll need to scrounge $60 million for the new site, BUT that includes the $19 million purchase price, which they've already incurred.

They struggle to get much above 10% ROE, BUT they think they'll geta pre-tax ROI north of 20% on the Montrose investment and it's the incremental ROI that matters.

Amalgem sales in slow decline, BUT Stela is a very promising replacement with likely significantly higher margins (but with some longitudinal risk given newness of the product).

Slow growing, BUT has somehow turned around a 7% sales decline (versus pcp) at their AGM, to a 3% increase just two months later. BUT that still represents a 9% decline on 2H FY23.

Nepotism is alive and well here, BUT there are some very good companies on the ASX for who that has worked well AND they can make a reasonable case of looking to their own history as an example of that.

I think the thing that is really holding me back is seeing so many examples of where companies (particularly at this end of the market) go through heavy investment cycles; the payback can come but it can take longer than you think and the share price may not budge for years.

It is interesting though and it hasn't really gotten any love for what looked to me like a better than expected trading update last month. One to mull on.

Hahaha, yeah it's been a rough ride for sure @Wini. Give it another year or two and I'm sure you'll be sporting this look:

Re SDI, it's always been on the cusp of improved growth and I ended up losing patience and selling out years ago. But it's encouraging to see the progress being made and I'll be keen to here what Sam says when we catch up.

I won't comment too much on the specific financials of this business but will comment on Stela (from a Dentist point of view).

Got given some samples and tried it out. I personally think it's an ok product. Nothing special however and I can't see how it's exactly an "amalgam replacement".

For those who don't know, amalgam is the silver type fillings that were popular 20-30 years ago for fillings mostly on back teeth. The pros of using amalgam were mostly because of the ease of use. You can place amalgams in very large layers at a time and there was no moisture sensitivity. However, the downsides were of course the lack of aesthetics and the fact that amalgams don't actually stick to the tooth and hence the dentist would have to remove a large amount of healthy tooth structure just to ensure the amalgam mechanically locks into place and doesn't fall out.

Newer type composite resin fillings actually adhere to the tooth. However, they are very moisture sensitive and also require a light to activate the adhesion process. Hence it cannot be placed in large layers at once as the light is unable to penetrate to the deepest part of the filling.

SDI are trying to market Stela as an alternative to amalgam but with much better aesthetics (it comes in different tooth coloured shades). It is a self-setting material which has the benefits of not needing to be light cured at the deepest part of the filling and also not being affected by shrinkage at the interface between tooth and filling. However, it is still a moisture sensitive material and given that the wait time to set is 4 mins, is an issue that will affect its use case.

My colleagues have the same thoughts with most of them saying that the 4 mins it takes to set is far too long and there are better alternatives out there which are also self-setting with shorter set times and thus are easier to use.

I can see a use case for Stela in some niche cases (for filling on top of root canals for example) but I can't see it being a product that will be very popular amongst dentists.

Disc: Not held.

Great post as always @Noddy74. Just a few points to further the discussion:

The shift from the existing facilities to the new one will take place over the next 5-10 years, which gives SDI plenty of time to fund it from free cash flow (~$8-10m a year right now). There will be lumpiness in the capex so there will be short term debt injections but I'd be surprised if net debt climbs much higher than it's current levels.

Return on tangible capital last year was ~16% (I'd argue on depressed earnings as well), so the 20% target seems achievable and as you point out will see some solid incremental improvement given the size of the investment.

The main reason for the sharp turnaround in sales after the AGM was key distributor Henry Schein getting hit by a cyber attack that meant they couldn't use their online customer portal as financial details were hacked (https://investor.henryschein.com/news-releases/news-release-details/henry-schein-provides-information-cybersecurity-incident). That was fixed and the sales backlog was largely cleared in November/December.

Generally I agree with your point on small caps struggling to see substantial share price gains while going through heavy investment periods. Where I would argue SDI may be different is earnings will hopefully recover from Covid gross margin impacts over the next year or two, and while the investment will swell the balance sheet, earnings through the P&L should be largely unaffected unless there is a disruption to operations. That is the key risk for me.