Scientific Digital Imaging - building nicely!

Scientific Digital Imaging is a company I haven't mentioned before, but I bought a healthy chunk of shares back in December 2016. So far, so good and I've no intention of selling any in the near future even though my holding is showing a gain of 150%. If they continue their healthy progress then the share price has far further to run in the short, medium and long term.

Here's what they're about:-

http://scientificdigitalimaging.com/about-us/

"Scientific Digital Imaging plc (SDI) designs and manufactures scientific and technology products for use by the life science, healthcare, astronomy, consumer manufacturing and art conservation markets through the Synoptics brands (Syngene, Synbiosis and Synoptics Health), the Atik Cameras brand, the Opus Instruments brand (Osiris), Sentek, Astles Control Systems, Applied Thermal Control as well as the recently acquired, Quantum Scientific Imaging.

SDI continues to grow through its own technology advancements, as well as through pursuing strategic, complementary acquisitions."

Yesterday they released a trading update and details of a further acquisition.

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/SDI/13802960.html

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/SDI/13802796.html

In short the year ending April 2019 remains on track, and the new acquisition is small, but excellent value and should contribute positively to earnings in it's first full year as part of SDI. The acquisition has been funded from existing cash resources.

SDI has a current market cap. of around £38m, a gross margin around 66%, and in the year ending April 2018 reported an operating profit of £1.8m. SDI doesn't currently pay a dividend, but is an excellent cash generator from it's operating activities.

On a historic p/e basis (around 25) it doesn't look cheap, but with an excellent recent record for organic growth and judicious earnings enhancing acquisitions, that p/e ratio is more than justified, particularly in context of the (shall we say) more heady ratings that some growth companies are currently on.

Two Directors recently bought some shares in SDI:-

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/SDI/13805673.html

David Tilston (a non-exec) bought £4140 worth whilst Jonathan Abell (CFO) bought a more significant amount and maiden holding of 59608 shares at a cost of £25512. It's always nice to see the CFO buying a substantial amount.

I really like this company as indicated earlier, and I'll be interested to see their half-year results released 17 December 2018.

As ever, it's just my thoughts and not an attempt at a tip sheet so always DYOR.

twitter: @michae1mouse

It's a steal!

It's a fact that in the long run 'value' shares outperform 'growth' shares. What I look for is a growth company that's currently great value. It's a bit like looking for hen's teeth sometimes, but they are there to be found most notably amongst the micro-caps.

Here's some financials for you:- This company has a £3m market cap with a current NAV of £3.7m (a discount of 19%). Whilst part of that NAV is goodwill and intangibles, the company boasts a cash balance of £1.44m.

The company has zero debt.

In the past four years turnover has increased as follows:-

2014 -      £1.26m
2015 -      £1.52m (+21%)
2016 -      £1.76m (+16%)
2017 -      £1.89m (+7.4%)

EPS was 0.14p in 2014 and doubled to 0.28p in 2015. In 2015, 2016 and 2017 EPS was largely flat at around 0.28p. The historic p/e ratio is around 9 (2017).

Cash on the balance sheet has been as follows:-

2014 -      £1.09m
2015 -      £1.09m (+0%)
2016 -      £1.30m (+19%)
2017 -      £1.47m (+13%)

The company pays a progressive dividend that has increased from 0.05p in 2013 (excluding the special dividend of 0.10p) to 0.10p in 2017. That's a 100% increase with a further increase expected in 2018 (interim dividend has been hiked by 25%).

Gross margins stand at around 98%-99%. Yes you've read that correctly.

Now that's a 'value' company!

Why are the shares currently rated so lowly, and what about the growth going forward?

Well firstly, 2018 is going to see a dip in earnings and from the interim results it appears that the company is going to be around break-even for the full year. This is "principally due to the expiry of a three year customer contract for Migrate". Migrate being one of their principal software offerings. The market is aware of this and from the figures above, it seems that this information is more than priced in (ridiculously so in my opinion).

Principally the company boasts three key products OmniMark, Migrate and AuthorBridge (a very recent addition). It's fair to say that sales of all three have been steady rather than spectacular so far.

With 99% gross margins however, they don't need to be spectacular, steady will be just fine (do the maths!). It should also be noted that the company boasts an impressive client base.

The expiry of the Migrate contract this year should prove to be a temporary blip in an otherwise steady growth trajectory, and (hopefully) a resumption to growth will occur in 2019 and beyond (year end is December), particularly with sales of AuthorBridge beginning to gain traction.

The company in question is Stilo International, and if they do return to growth in 2019 then I fully expect the share price to re-rate significantly from it's current lows. Meanwhile whilst you're waiting you'll be entitled to a 4%+ dividend with the comfort of a very strong balance sheet.

At the current share price Stilo is a real steal in my book!

Please note that Stilo is a real minnow and the shares highly illiquid. From observation on Friday, 22,000 shares traded (as far as I can see) moved the bid up 0.3p (6%). 

As ever, I am a holder of shares and I'm not giving advice so please DYOR.

twitter: @michae1mouse

Zesty and promising or just a lemon?

Serial disappointer Mediazest gave a welcome update to the market yesterday with an excellent (and somewhat unexpected) trading update:-

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/MDZ/13793984.html

In short "for the half year ending 30 September 2018, the Board expects to report revenue in the region of £1.8million (2017 £1.3million) and a maiden Net Profit for the Group of approximately £90,000 (2017: loss of £149,000)."

Now that's impressive for a company with a market cap. of less than £1.5m.

So what's my relationship with this company? Well I have a small amount invested in Mediazest which is just enough to keep me interested.

Late 2016, almost on a whim I bought a reasonable sized holding in MDZ when I was seduced by it's lowly market cap., promises of imminent profitability and hints at game changing contracts in the offing. Sadly, over the next year, these promises and game changers came to nought and the share price sank accordingly and I was left sitting on paper losses.

Bizarrely, at the back end of 2017, out of nowhere up pops a guy called Ian Hallett who begins the process of buying 20% of Mediazest, and the share price quickly accelerates upwards. I'm not complaining, I sell the majority of my shares into the rise and make around 10%. Not great but significantly better than the losses I'd previously been sitting on.

In truth, I half expected an offer to materialise for the company so I held a few but I'd reflected on my initial impetuousness and decided that given Mediazest's history and less than convincing balance sheet that I couldn't look a gift horse in the mouth and was largely happy to sell the vast bulk of my shareholding for a small profit.

Equally bizarrely, Ian Hallett then sold his entire 20% holding within a year and the share price slumped again as quickly as it had risen, so overall I feel I've made the right decision but I'm equally happy to have a small holding in Mediazest given yesterday's trading update.

I've mentioned a couple of bear points and until we see the interims it's impossible to guess how the balance sheet looks. Clearly cashflow and cash at hand are important measures that were not referred to in the trading update. However, the fact that they've made a maiden profit (albeit for six months) is very encouraging, particularly in the context of a significant amount of recurring revenues being
generated and the associated higher margins. It's also worth noting that Mediazest boast an impressive client roster including Volkswagen, Clydesdale and Yorkshire Banking Group, HP, Opel, BMW, Ted Baker, Diesel, Kuoni, HMV, Halfords, Hyundai and several others. That's not bad is it?

I consider my holding here speculative. However, given the market cap. and illiquidity of dealing in the shares, if Mediazest do continue their growth and consistently deliver increasing recurring revenues and profits going forward then the share price will undoubtedly multibag.

As ever, these are just my thoughts and dealings and no advice is intended.

twitter: @michae1mouse