Scientific Digital Imaging

Despite economic slowdown, digital imaging equipment specialist SDI has issued resilient half-year results and expects to beat full year forecasts.

Interims to October from SDI, chaired by Harry Tee, CBE, revealed a creditable 7% sales rise to £3.42m, reflecting the insulation of scientific research and development budgets as well as a boost from Atik (the renamed Artemis and Perseu acquisitions from 2008), the erstwhile SDI supplier whose high-sensitivity cameras are used in certain instruments made by SDI's core Synoptics business.

Expansion of gross margins to 57.8% (2008: 54.3%) was due, among other things, to synergies arising from the inclusion of Atik, as well as increased sales of higher-value systems. However, the weaker pound against the US dollar, alongside increased investment, pegged operating profits back from £270,000 to just over £75,000.

Encouragingly, despite a slight sales decrease, Synoptics increased its margin contribution due to growing sales of higher-value systems, and sales in the US also grew, boosted by the availability of stimulus funds. Meanwhile, Atik, making good progress in the amateur astronomy market among other niche areas, scored improvements in both margin and turnover and made a good contribution to the results.

Showing pleasing resilience and still scouting for small acquisitions in a fragmented global market, SDI was forecast to deliver pre-tax profits of £120,000 for April 2010 and 0.47p of earnings, estimates the board now believes it will better.

However, on those estimates the shares, backed by Growth Company Investor at 13.5p last March and now 56% higher, trade on a rather lofty looking prospective multiple of 29 times and given the strong share price performance, some partial profit-taking might be prudent. Nevertheless, stay significantly invested for the long-term. Reduce.