Director, RaaS Research Group, Research as a Service (RaaS)

Research as a Service (RaaS)

Director, RaaS Research Group

Insightful Financial Models and Research Analysis

Connect to the right investors through smart and insightful financial models and research analysis.

Equity Bottom-Up

<div>
<div>
<div>
<div>
<h2>SDI Limited</h2>
<h3>Revenue growth currently offset by freight costs</h3>
<div>
<div>
<div>
<div>
<div class="content-highlight">
<p>SDI Limited (ASX:SDI) conducts the research and development, manufacturing and marketing of dental restoration materials and related products. Selling to more than 100 countries with dedicated sales teams in Australia, Europe, North America and Brazil, SDI is the largest dental manufacturer in Australia. SDI was founded in 1972 and listed on the ASX in 1985. SDI’s key focus categories are aesthetics (45.0% of H1 FY22 sales) and whitening (31.5%), with new product development and an internal sales team key to marketshare gains. These categories grew sales 29% and 19% respectively in H1 FY22 despite some COVID- related disruptions around supply chain and lockdowns in Australia. The group’s brands include Pola, Riva, Luna, and Radii Xpert. In addition to new product development, the group is undertaking a review of warehousing and manufacturing facilities to improve operating efficiencies and, in turn, margins, with details expected during CY22. Net cash declined $4.0m at December 2021 due to inventory build-up and additional freight costs, but SDI remains in a net cash position ($6.5m) with an unused $10m debt facility, well-funded to deliver key initiatives. H1 FY22 saw a significant ($2.7m) increase in freight costs (mainly inbound materials as clients pay outbound), more than offsetting a 26% increase in sales for the period. EBITDA as a result declined 30.3% with the freight costs a material contributing factor of this decline on the PCP. Price increases are in train to offset margin pressure, but there is a lag.</p>
</div>
<div>
<div>
<div>
<div>
<h3>Business model</h3>
<p>SDI is a vertically integrated researcher, developer, manufacturer and distributor of dental restoration materials, tooth whitening and related products. These products are essentially medical devices and subject to significant regulatory and technical review before being available on the market. To gain marketshare SDI is focused on: new product development (at least one-two new products per year); building its own sales team complete with adequate systems to better understand clients; and expanding manufacturing facilities to improve efficiencies.</p>
<h3>Elevated costs impact H1 FY22 earnings</h3>
<p>Despite delivering sales growth in A$ terms of 26% over H1 FY22, group EBITDA declined 30.3% on the back of elevated freight costs ($2.7m, which represented 100% of the earnings decline over the period). This resulted in a 1,250bps decline in gross margin to 52.4%, which was also impacted by geographical mix (stronger sales into lower-margin regions). On the revenue front the group saw growth across all product categories led by amalgam (+40%) and aesthetics (+29%). Regionally, APAC sales declined due to Australian lockdowns during the half impacting dental activities (-9%), while all other regions were significantly higher as operating conditions “normalised”.</p>
<h3>Established medical device companies logical peers</h3>
<p>Peers for SDI are well-established mid-cap medical device companies with an established market position, gross margins between 60% and 70%, and operating in a regulated industry. Companies that fit most of these criteria include fertility players Monash IVF (ASX:MVF) and Virtus Health (ASX:VRT), and sleep apnoea player Oventus (ASX:OVN), albeit they are much smaller and not profitable.</p>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div>





SDI Limited
Revenue growth currently offset by freight costs





SDI Limited (ASX:SDI) conducts the research and development, manufacturing and marketing of dental restoration materials and related products. Selling to more than 100 countries with dedicated sales teams in Australia, Europe, North America and Brazil, SDI is the largest dental manufacturer in Australia. SDI was founded in 1972 and listed on the ASX in 1985. SDI’s key focus categories are aesthetics (45.0% of H1 FY22 sales) and whitening (31.5%), with new product development and an internal sales team key to marketshare gains. These categories grew sales 29% and 19% respectively in H1 FY22 despite some COVID- related disruptions around supply chain and lockdowns in Australia. The group’s brands include Pola, Riva, Luna, and Radii Xpert. In addition to new product development, the group is undertaking a review of warehousing and manufacturing facilities to improve operating efficiencies and, in turn, margins, with details expected during CY22. Net cash declined $4.0m at December 2021 due to inventory build-up and additional freight costs, but SDI remains in a net cash position ($6.5m) with an unused $10m debt facility, well-funded to deliver key initiatives. H1 FY22 saw a significant ($2.7m) increase in freight costs (mainly inbound materials as clients pay outbound), more than offsetting a 26% increase in sales for the period. EBITDA as a result declined 30.3% with the freight costs a material contributing factor of this decline on the PCP. Price increases are in train to offset margin pressure, but there is a lag.





Business model
SDI is a vertically integrated researcher, developer, manufacturer and distributor of dental restoration materials, tooth whitening and related products. These products are essentially medical devices and subject to significant regulatory and technical review before being available on the market. To gain marketshare SDI is focused on: new product development (at least one-two new products per year); building its own sales team complete with adequate systems to better understand clients; and expanding manufacturing facilities to improve efficiencies.
Elevated costs impact H1 FY22 earnings
Despite delivering sales growth in A$ terms of 26% over H1 FY22, group EBITDA declined 30.3% on the back of elevated freight costs ($2.7m, which represented 100% of the earnings decline over the period). This resulted in a 1,250bps decline in gross margin to 52.4%, which was also impacted by geographical mix (stronger sales into lower-margin regions). On the revenue front the group saw growth across all product categories led by amalgam (+40%) and aesthetics (+29%). Regionally, APAC sales declined due to Australian lockdowns during the half impacting dental activities (-9%), while all other regions were significantly higher as operating conditions “normalised”.
Established medical device companies logical peers
Peers for SDI are well-established mid-cap medical device companies with an established market position, gross margins between 60% and 70%, and operating in a regulated industry. Companies that fit most of these criteria include fertility players Monash IVF (ASX:MVF) and Virtus Health (ASX:VRT), and sleep apnoea player Oventus (ASX:OVN), albeit they are much smaller and not profitable.













SDI Limited - Revenue Growth Currently Offset by Freight Costs

Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

Macroeconomics

<p>The Government's release&nbsp;of Re:think,&nbsp;its tax discussion paper, is a welcome development, designed to kick-start the conversation with the community on a range of reform options designed to&nbsp;achieve a simpler&nbsp;and&nbsp;streamlined&nbsp;tax system&nbsp;capable of meeting the growing needs of an ageing population.&nbsp;&nbsp;&nbsp;I discuss some of the areas raised in Re:think which are of greatest interest to equity investors: how important income and consumption taxes are to Australia's tax take in a global context,&nbsp;the prospect of the growing drag from bracket creep on household disposable incomes (discretionary retailers), the outlook for the GST (supermarket&nbsp;retailers),&nbsp;the efficacy and viability of the dividend imputation system (high yielders with predominantly domestically oriented operations), the sustainability of the concessional tax treatment of superannuation (asset managers), and the risk associated with companies that have low effective tax rates.</p>

The Government's release&nbsp;of Re:think,&nbsp;its tax discussion paper, is a welcome development, designed to kick-start the conversation with the community on a range of reform options designed to&nbsp;achieve a simpler&nbsp;and&nbsp;streamlined&nbsp;tax system&nbsp;capable of meeting the growing needs of an ageing population.&nbsp;&nbsp;&nbsp;I discuss some of the areas raised in Re:think which are of greatest interest to equity investors: how important income and consumption taxes are to Australia's tax take in a global context,&nbsp;the prospect of the growing drag from bracket creep on household disposable incomes (discretionary retailers), the outlook for the GST (supermarket&nbsp;retailers),&nbsp;the efficacy and viability of the dividend imputation system (high yielders with predominantly domestically oriented operations), the sustainability of the concessional tax treatment of superannuation (asset managers), and the risk associated with companies that have low effective tax rates.

Australia

SDI Limited produces and distributes amalgam (which is used for filling tooth cavities) and composite restorative materials along with other dental materials. SDI also is involved in product research and development. The Company sells its products throughout the world to private and group dental practices.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

SDI Ltd (SDI AU)

SDI Limited - Revenue Growth Currently Offset by Freight Costs

SDI Limited Revenue growth currently offset by freight costs SDI Limited (ASX:SDI) conducts the research and development, manufacturing...

Research as a Service (RaaS)

Taxing Times For Australia

The Government's release of Re:think, its tax discussion paper, is a welcome development, designed to kick-start the conversation with the...

Sam Ferraro

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)