A good result for SDI.
Sales were up 7.7% in the first half to $40m, with Net profit up 11.9% to $3.9m as the higher margin aesthetic products continue to dominate a larger part of the sales mix. This was despite a 12% lift in operating expenses due to an increased invesment in sales & marketing and R&D.
Amalgam sales -- which are now ~20% of the total, and will continue to drop -- decreaed by 13.6% in constant currency, but aesthetic and whitening products saw a 11.5% and 12.9% increase, respectively. Importantly, these rates of growth were well above that of the wider industry, suggesting increased market share.
The dividend was increased 12.5% to 1.35cps, which gives SDI a trailing 12-month yield of 2.8%, fully franked -- or just shy of 4% when grossed up to account for the tax benefit.
Brazil saw a strong improvement with a 21% lift in sales, with past manufacturing investment giving SDI a better competitive position. However, the US (which is >3x the size of the Brazil unit) saw a 5% drop in sales -- although a weaker AUD helped offset this. Amalgam represents a 1/3rd of US sales, so the structural decline in this product has a more pronounced effect. However, whitening sales were also weak, which management said they are addressing with a new marketing campaign.
The balance sheet remains debt free with $6m in cash. Cash conversion was good.
SDI expects the usual seasonality, with second half sales to be stronger. Assuming usual half-year splits, I'm expecting FY sales of 87m, which should translate into NPAT of $8.5m (or EPS of 7.2c) as margins continue to increase (contsant currency).
Results presentation is here
A specialist developer and manufacturer of restorative dental products, SDI has been listed since 1985. Sales have steadily grown over the years, and today SDI generates over 90% of its sales offshore, to more than 100 countries.
Growth has been hampered in recent years as demand for traditional amalgam fillings -- which 5 years ago accounted for half of total sales -- has continued its structural decline. That's a trend that is set to slowly but inevitably continue, though with amalgam representing 22% of sales today, that drag will lesson over time.
Offsetting this decline has been strong growth in more premium, higher margin products, for which SDI has successfully developed and brought to market. Importantly, they have a concerted R&D effort that will see 4 new products launched this year, with 1-2 new products a year expected going forward.
The balance sheet is quite strong with no net debt. Free cash flow has been rising and the dividend very well supported. The business has not needed to raise cash in the past 20+ years, and funded all growth internally.
CEO and Chairman (founder) own around half the business. Shares are fairly thinly traded.
Not expecting strong growth, but I expect this will be a larger (and more valuable) business in 5 years time. A great one for the bottom drawer -- especially if you like reliable dividends -- at the right price.