SDL (SDL) made good headway on its multi-year transformation programme in the first half, after challenges in 2017 dampened revenue growth and the gross margin. The numbers looked even more impressive on a continuing basis – with sales up 2.8 per cent, and pre-tax profits up 30 per cent to £7.8m, ignoring the £20.6m profit generated from business disposals last year.
Most encouraging was the improvement in (continuing) gross margin from 50.5 per cent to 52.9 per cent – supported by the dominant language services division, where the margin rose 3.4 percentage points to 41.8 per cent, on 2.6 per revenue growth to £91.8m. Heightened efficiency here stemmed from greater usage of machine translation, more work being undertaken in-house, and the ‘Helix’ automation programme – which was processing 9m words each week in July. SDL’s goal of reaching exit-rate gross margins of over 45 per cent by the end of 2018 looks increasingly feasible.
The company has also intensified its focus on premium, higher-value content often found in regulated industries. July’s $77.5m (£59.9m) acquisition of Donnelley Language Solutions enhances SDL’s positioning in financial services and life sciences, and should be earnings-accretive in 2019. SDL’s other two segments also enjoyed sales momentum – though language technologies’ gross margin dipped on a change in sales mix.
Investec forecasts adjusted pre-tax profits of £27.3m and EPS of 23.8p for 2018 (from £22m and 18.7p in 2017).
SDL (SDL) | ||||
ORD PRICE: | 516p | MARKET VALUE: | £ 467m | |
TOUCH: | 512-522p | 12-MONTH HIGH: | 560p | LOW: 333p |
DIVIDEND YIELD: | 1.2% | PE RATIO: | 28 | |
NET ASSET VALUE: | 214p* | NET CASH: | £22.5m |
Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
2017 | 141 | 20.9 | 22.9 | nil |
2018 | 143 | 7.8 | 6.8 | nil |
% change | +1 | -63 | -70 | - |
Ex-div: | na | |||
Payment: | na | |||
*Includes intangible assets of £158m or 175p a share |