So GP Margin down 11% (DH2020 GP Margin was 64.9%, so currently...

So GP Margin down 11% (DH2020 GP Margin was 64.9%, so currently running at around 54%)

I very much doubt that freight-induced GP Margin squeeze will last for long; my guess is that by this time next year aeroplanes will once again be flying around the world.

Which will see that 11% GP Margin cancer unwind (or at least the bulk of it).

So I think that to worry too much about that is a bit of wasted anxiety.

Rather, the thing about which I worry is the extent to which they retain customers after hitting them with price rises.

The company's MD reckons all good so far, and also predicts customers will accept the price increases. (She rose through the Sales and Marketing ranks, remember, so presumably her opinion on the pricing strategy is a well-considered one).

If she's right, the business is currently under-earning and FY2023 will see a meaningful lift in margins and profitability, driven by the dual tailwind of higher prices and normalisation of logistics expenses.


Which is why, given the current state of post-Covid flux, I think that an investment in SDI today requires a view - not about what FY2022 holds - but about what might transpire in FY2023.


Starting with revenue:

FY2021 Rev was $81.7m.  Let's say FY2022 ends up at $95m (so 16% increase ... easily achieved, I think, given YTD is running at 25%).

And then let's say a further 10% growth in FY2023 (again, a cinch given annualising the price increases this year would probably contribute to the bulk of that), so FY2023 Revenue of $105m.

Now assume the GP margin recovers from the current 54% level, to only 60% (so only 6% of the 11% logistics related crunch reverses).

That gives Gross Profit of  ~$63m.

CoDB was $37m in FY21; assume that rises to $43m (a sizeable 16% increase) by 2023.

So that means FY2023 EBITDA = $20m.

At 70% dividend payout ratio, 35% working cap-to-sales and $5m pa investment in capex and intangibles, the net cash balance by end of FY23 will be approaching $20m.

Current Market Cap = $130m, so prospective FY2023 EV = ~$110m

Implies prospective 18-month EV/EBITDA of just 5.5x
(And with $5m in D&A, EV/EBIT is around 7.5x)


Even with several layers of prudential conservativeness in assumptions, the stock continues to look unambiguously cheap, despite it reaching sixteen-year highs today.


Personally, I'd pay 12x EV/EBIT (equivalent to 9x EV/EBITDA) for a business of this nature and pedigree (especially now that the amalgam sales drag is diminishing quickly and the true underlying growth in the aesthetics and whitening products is coming to the fore).

Which equates to a prospective 2023 EV of around $180m, and an Equity Value of almost $200m (~$1.65/share).

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