SDI

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Ann: 2016 AGM Presentation, page-156

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madamswer

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13/02/17

22:47

Post #: 22583174
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Originally posted by madamswer ↑

@thebarginhunter,

There are very few companies I follow whose short-term earnings are as sensitive to exchange rate movements, as SDI's.

And the problem is that SDI has an A$ functional currency, yet 90% of SDI's Revenue are made up of exports (i.e., invoiced in non-A$ currencies).

Consequently, the strength in the A$ in recent months means that the stock is probably cum-downgrade for FY2017.

For what its worth, if this current A$ strength continues, then I suspect NPAT for the full-year will be around $6.3m, which would be down some 15% on the record FY2016 result.
(By halves, it would look something like: DH2016 = $2.2m, down 26% on pcpc, and JH2017 = 4.1m, down 10% on pcp).

So, similar to what happened in the years during the early resources boom, when the A$ started to rise, FY2017 is sure to be a lost year, in terms of growth in A$ terms.

But this masks the continued underlying growth in constant currency terms.

While I'm no good at making long-range forecasts (especially not when it comes to exchange rates), if in FY2018 the A$ stabilises at the current level, then a repeat of the masking of the the organic growth in the business will not recur.

In this case, assuming that SDI's earnings recover just half-way between FY2017's level, and FY2016's (before the A$ strengthened and before the pound collapsed due to Brexit)...
on that basis, the stock will be trading on a P/E of around 11.5 to 12.0x and an EV/EBITDA multiple of around 5.5x.
(On my FY2017 forecasts, the corresponding multiples are 13.0x and 6.1x, respectively.)

So, whether one looks at FY2018 numbers, or even at the currency-affected FY2017, the stock does not look fundamentally undervalued.

Unfortunately, that is unlikely to cause the share price to rally any time soon, as long as everyone knows that earnings expectations still need to be re-based downwards.

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Erratum:

Of course, that second-last paragraph should read as follows:

"So, whether one looks at FY2018 numbers, or even at the currency-affected FY2017, the stock does look fundamentally undervalued."

SDI Price at posting: 69.5¢ Sentiment: Buy Disclosure: Held
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Last 91.0¢		Change 0.030(3.41%)		Mkt cap ! $108.1M

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Ann: 2016 AGM Presentation, page-156

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Ann: 2016 AGM Presentation, page-156

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