The essence of this company can be found in two simple charts....

The essence of this company can be found in two simple charts.

The first one has been known for a while:




But the second one is something that has only emerged over the past several reporting periods:



I had always wondered what the GP Margin would do as Composites & Whitening products replaced Amalgam as the dominate proportion of SDI's sales mix over time.

The answer to that question is starting to become increasingly clearer (recognising, of course, that the A$ recent weakness in the A$ will explain part of the later trend.  But probably less than half of it, in my view.)

[Little wonder, then, that management has historically been somewhat coy about the likely GP Margin difference between Non-Amalgam and Amalgam products.]


Of course, the question that I think is most relevant is:

What does management do with this embarrassment of riches being enjoyed currently (and which may not last forever)?


Given the nature of cost and capital investment in the business that is currently underway, I'd say they are doing exactly what shareholders would want: i.e., namely, investing in "good" costs:

- R&D
- Marketing/Branding
- Production Modernisation and Automation

For context, 17% increase in Gross Profit, compared to a 11% increase in EBIT... that reflects a significant investment in Marketing and R&D. (R&D spend is up a whopping 37% in the half . Similarly, Capex is up 29%.)

Had they wanted to, they could easily have made this EBIT result come in more than 20% higher, and the 31 Dec 2019 cash balance $2m higher.  If they chose not to invest as aggressively back into the business.


I'm always loathe to draw comparisons of the following nature, but there are some striking similarities between the composition of this SDI result and the BRG and CSL results announced earlier this week, notably in the strong Gross Profit growth being masked at the bottom-line by significant investments in things that will make those businesses stronger, more competitive and will perpetuate longer-term growth.

Of course, SDI is no BRG nor CSL, quality-wise [*]
(Nor, obviously, size-wise).

But then again, SDI is only trading on a EV/EBITDA multiple of around 6x, compared to BRG's and CSL''s multiples which are five times that.


[*] That's no shame at all; precious few companies are.