Sarine Technologies (SI:SARI) is an established leader in equipment and services for the diamond manufacturing industry (the so-called “midstream”) with its own proprietary technology. Through new products and services, the company has entered the higher value-add downstream retail segment of the industry, which is more than twice the size of its traditional midstream market and commands higher valuations. This potentially underpins attractive growth and share price prospects over the medium term. Investors looking for direct exposure to the diamond industry may find the stock of interest in its initial stages of entering new markets.
Expanding into a much bigger market
Sarine is the market leader in precision equipment for the midstream segment of the diamond industry. Its automation products have transformed the diamond manufacturing process and attest to the company’s strengths in technology and innovation. Sarine has more recently developed technology that is also relevant for wholesalers and retailers, potentially transforming the way polished diamonds are sold and certified. The downstream market is significantly larger than midstream, generating revenues of around US$74bn compared to US$19bn in 2016.
Strong cash flow generation and balance sheet
Sarine’s ability to succeed in its expansion can be supported by the strength of its existing business, which generates strong cash flows and recurring revenue. A debt-free balance sheet, cash and cash equivalents of nearly US$20m and a further US$21m in short-term deposits is ample to support its growth and ongoing research and development spend. Furthermore, Sarine is past the peak of its investment cycle, which should allow ROEs to improve.
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