Here’s why the SDI (ASX:SDI) share price is up almost 40% this year

Most of the sales growth came from overseas markets, showing how the easing of pandemic restrictions can affected sales across different regions.

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Shares in dental materials company SDI Limited (ASX: SDI) have been among the standout performers on the ASX so far in 2021. The SDI share price has climbed almost 40% year to date according to Google Finance, to $1.07 at yesterday’s close.

The impressive gains are on the back of a huge jump in net profit this financial year. This is a sign that many jurisdictions in which the company operates are beginning to rebound from COVID-19.

Company background

SDI (which stands for Southern Dental Industries) develops specialist products for the dental industry. This includes teeth whitening equipment, adhesives and cements, and composite materials used for fillings, tooth repair and restoration.

SDI was founded in Victoria back in 1972, and the company still manufactures its products there. However, it has now grown into a company with a global reach, selling its products in over 100 countries. It also now has international offices and warehouses located in the United States, Germany and Brazil.

Recent financials

SDI released its FY21 financial results to the market on 20 August. SDI reported sales of $81.6 million in FY21, a year-on-year jump of more than 21%. Earnings before interest, tax, depreciation and amortisation expenses (EBITDA) jumped almost 72%. While net profit after tax (NPAT) rocketed 111% higher (to $8.9 million).

Most of the sales growth came from overseas markets. North American sales were up almost 40% and European sales up a little over 35% (in Australian dollar terms). By comparison, Australian sales (including direct exports) only increased 4.1% year on year. This shows how the relative easing of pandemic restrictions has affected sales across the different regions.

SDI CEO Samantha Cheetham commented on the result:

Throughout this year, the restrictions in many markets began to be eased and we saw a gradual opening up of dental practices. The initial pent-up demand we have spoken about was evident and, as we ended the financial year with many regions operating closer to normal, we have seen steady increases with new products releases key to our momentum as we exited the financial year.

The company also ended the financial year with a relatively healthy balance sheet. It reported net cash of $10.6 million and no debt.

Recent moves in the SDI share price

The SDI share price really started to gather some steam at the beginning of May, after the company released a trading update for FY21. The company said that it was seeing a return to more normal conditions in many of its overseas markets and estimated that after-tax profit would be in the range of $7.5 million to $8.5 million.

There was a further big jump in the share price at the beginning of August. Perhaps some analysts began to suspect SDI might exceed its own earnings estimates, particularly as the US and the UK markets continued to open up. Since the beginning of August, the SDI share price has risen almost 20%.

It is worth noting that SDI only has a market capitalisation of a touch over $125 million, which makes it a very risky investment. However, SDI is at least posting a profit – something which big-name market darlings like Afterpay Ltd (ASX: APT) have yet to do.

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Motley Fool contributor Rhys Brock owns shares of AFTERPAY T FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool Australia has recommended SDI Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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