SDI Group (LON: SDI) shares are down 13% in London Thursday morning. Which seems something of a pity as the announced results are pretty good. But there is the one little line buried in there which explains that share price fall. The point for us to pick up from this being that corporate announcements often do contain little stings in the tail - the other shoe that we have got to watch drop. Thus the art of reading such announcements is to - quickly preferably - work out what it is that is being said but which the management would prefer we did not note too much.
SDI Group makes scientific instruments, the structure of the company is to be the specialist in any one market. There are markets where really there is only going to be the one supplier. A small market that must be served to a high standard, reputations matter and all that. There is also little point in trying to grow such specialists any faster than their specific markets. Reputation, even ability, does not necessarily extend beyond that particular vertical. The only way to get growth at the corporate level is therefore to continue to buy such specialists and their tiny markets through acquisition. Well, that's all fine as a strategy. Might even be useful economies of scale among the salesforce and so on.
SDI Group share price from London Stock Exchange
At which point we get the annual results. Which are full of nice news: “Adjusted Profit Before Tax is expected to be in the region of £11.8m (FY22: £11.8m), in line with current market expectations” which is great, right? Supply chain problems are clearing up, acquisitions are being integrated and everything's just great. Except, of course, it is not, as shown by that 13% decline in the share price. So, what's caused that?
“Atik Cameras' trading in FY23 included sales of c.£8.5m supplying PCR cameras to a specific OEM customer. We do not currently expect any further PCR contracts from this customer” Ah. Now, that's near 15% of total revenue for the overall company. Which isn't, as they say, going to happen again. “...it is disappointing that there are not likely to be any more PCR camera or other product sales to this customer” Well, yes, that's one way of putting it.
Reading corporate releases is an art form. One that anyone serious about investing would do well to master.
