Ann: Trading Update, page-10

"I'm surprised the market hasn't warmed up to SDI on the back of this update. The update implies a very strong last quarter of 2024 and yet the stock is trading below where it was at the time of the AGM."

If one understands the acute seasonality in SDI's sales, then it is not a given that last quarter was necessarily all that strong.

Potential for misunderstanding starts with the AGM update which reflects Sept quarter performance.

Trouble is, that's by far SDI's weakest quarter due to the northern hemisphere summer hiatus (typically, somewhere between just 10% and 15% of SDI's earnings are generated in that quarter), compared to around 20% in Dec quarters. (On average, June half-years account for around two-thirds of SDI's earnings).

The point being that an update at the quarter-stage mark is not overly meaningful when it represents just 10% of annual profits: why, a reasonably sized order that gets invoiced just after the last day of the quarter can make a significant difference to the normally small earnings base typical of the September quarter.

So I wouldn't get too excited about concluding that DQ2023 quarter represented some kind of major turnaround; more likely, it merely reflects timing of shipments that fell in one quarter, instead of the preceding one.

I think the thing that matters far more for investors who follow SDI, is the major operational transformation that is about to get underway (effectively a total replication of the manufacturing base, and then some), the execution risks around that as well as the amount of debt that will need to be assumed in the process. And debt is something that has been an anathema to SDI for several years.

So I suggest that is what has been holding back the stock, not just now but going back some time. And I struggle to see why that won't persist until clarity emerges that the manufacturing project is being delivered on-time and on-budget.

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