"...not sure how to interpret the comment on sales growth on...

"...not sure how to interpret the comment on sales growth on page 9 given the sales volatility in recent years."

Yes, the folk over at SDI headquarters sometimes make it difficult for investors to decipher exactly what it is that they are actually trying to tell the market.

My interpretation of the reference to sales trends is that they are no different to the now-established pattern of - in constant currency terms:

1. meaningful (~-10%) declines in amalgam sales (expected to be ~20% of total group sales this financial year),
2. being more than offset by strongly increasing (+10%) sales of Composites/Aesthetics (now comprising ~45% of group sales), with
3. Whitening Products (28% of sales) growing modestly (+3%/+4%), and
4. Equipment (7% of sales) being modestly lower (-3%/-4%).


For context, the rates of growth (constant currency terms, remember) per product category in recent years, are as follows:



Conducting a rough weighting by % contribution of those respective product growth rates suggest constant currency Sales growth for the group of around 3% or 4% this year. Add to this some 2% or 3% for the weaker A$ (assuming it remains at its current level against the basket of other SDI invoice currencies) and you get A$ denominated Sales growth of around 6% for FY2020. [*]

Assuming the usual operating leverage that exists in SDI's P&L, that 6% top-line expansion should translate into an increase at the bottom-line of 8% to 9%, to around $8m in NPAT (corresponding to EPS of ~6.7cps).

That equates to a P/E multiple of 12.8x (or sub-12x if the net cash balance is stripped out).


[*] It should not be lost on followers of SDI that, due the the "organic arithmetic", as the fast-expanding part of the business gets proportionally larger while the contracting part of the business gets proportionally smaller, the underlying growth rate of the company itself tends to the growth rate of the fastest-growing product line.

For example, if one had, say, in 2015 derived an average, weighted by proportional sales per product stream - when Amalgam represented 40% of group sales and Composites/Aesthetics just 28% - then the underlying growth rate of the overall company would have been found to be negative.

This year, it is theoretically around 3% to 4%.

In two years' time, when the product that is a drag on organic growth, i.e., Amalgam, is expected to represent a mere ~15% of total group sales and Aesthetics around 55%, the underlying organic growth rate of the company's revenues will be travelling at a decent clip somewhere between 5% and 5.5%.

(Of course, that all assumes they continue to execute just as they have been doing in recent years.)