SDI Group acquisition

Conclusion: This is what I‚Äôm in SDI for; earnings enhancing acquisitions within the scientific instrument field. The shares have performed well recently, up 235% over the last six weeks or so. Before today‚Äôs acquisition that leaves them on 183.6x April 2020 earnings forecasts. Forecast for April 2021 put it on 16.7x earnings but today’s acquisition and others to come will bring that multiple down. So, while it is valued at under 20x prospective earnings I am happy to stick with my Medium Risk/High Return evaluation, which for me, points to a 5.0% position. Results for the six months ended 31st¬†October will be released on 17th¬†December. I think the stock has a lot more upside over the coming year and I remain a Happy Holder.

 

 

SDI announces the acquisition of Chell Instruments. Chell designs, manufactures and calibrates pressure, vacuum and gas flow measurement instruments. It is active in a variety of sectors including aerospace, vehicle aerodynamics, gas and steam turbine testing and power generation industries.

 

It is paying £4.3m and an additional cash payment for net assets at completion. The additional payment is expected to be less than £1.7m and the net assets are expected to include an element of cash. 

 

In the year ended 31st December 2018, Chell achieved revenue of £4.7m, a gross profit of £2.5m and profit before tax of £0.78m. 

 

SDI says it has identified areas that have the potential for growth using the strong management team the company has recruited over the years.

 

The acquisition is expected to be earnings enhancing in the first full year of ownership.

 

SDI has also reached an agreement with HSBC for a 3-year amortising term loan of £4.8m to add to its existing Senior Facility of £5m. Both loans have an end-date of April 2023. SDI’s net debt position on 31st October was £0.7m. 

 

Ken Ford, Chairman of SDI said:

“Chell Instruments is another step in our Group growth strategy. It is a complementary fit providing potential areas for growth. The¬†acquisition is in line with our previously announced strategy of organic and acquisitive growth and is expected to be earnings enhancing in its first full year of ownership.”

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