Share price: 93.5p (+6%)
No. of shares: 60 million
Market cap: £56 million
Pre-close trading update
This is a software company providing industry-specific solutions to a range of sectors.
Checking my prior notes, I last covered Sanderson when it made a large (£12 million) acquisition late last year. At the time, I had a positive impression of prospects. Customer concentration was material but perhaps at an acceptable level - the biggest customer accounted for 12% of sales.
Today's update is nice. Key points:
The acquired business has "made a good start"
Trading results are "slightly ahead of management's expectations with revenue and profit growing by over 30%".
Helpfully, Sanderson also reports comparable "like-for-like" growth rates, excluding the acquisition. Organic sales are about flat, up from £10.9 to £11 million. Like-for-like operating profit is up 10% (efficiency gains) and the like-for-like order book is up 15%.
I'll refrain from any further analysis until we get more detailed results (due on 23 May), but for now I maintain my positive impression of the company and would suggest that it is worthy of additional research. The StockRank is a mighty 97."
Results slightly ahead of management's expectations; positive trading momentum maintained with strong balance sheet; November acquisition makes a good start; current order book now standing at Â£8 million."
Sanderson Group plc ('Sanderson' or 'the Group'), the software and IT services business specialising in digital retail technology and enterprise software for businesses operating in the manufacturing, wholesale distribution and logistics sectors, issues the following trading update ahead of the announcement of its interim results for the six months ended 31 March 2018, which are scheduled to be released on 23 May 2018.
Sanderson Group was expanded and enhanced by the acquisition of the Anisa Group ('Anisa') on 23 November 2017, for an enterprise value of Â£12 million. Anisa specialises in the delivery and support of world-class integrated supply chain and enterprise resource planning ('ERP') solutions on a global basis. The size and strength of the Sanderson Enterprise division has been significantly enhanced and Anisa has made a good start as part of Sanderson.
The Group's trading results for the six months ended 31 March 2018 are slightly ahead of management's expectations with revenue and profit growing by over 30%. Group revenue was just above Â£14.5 million (H1 2017: Â£10.9 million) and operating profit (stated before the amortisation of acquisition-related intangibles, share-based payment charges, acquisition-related and restructuring costs) increased to over Â£2 million (H1 2017: Â£1.55 million). On a 'like-for-like' basis, excluding the acquisition, revenues have risen to just over Â£11 million (H1 2017: Â£10.9 million) and operating profit, reflecting a more efficient and lower cost of the delivery of Group solutions, at over Â£1.7 million (H1 2017; Â£1.55 million) is more than 10% ahead. Gross margins continue to run at a high level of over 80% and growing pre-contracted recurring revenues increased to above Â£8 million ('like-for-like' excluding Anisa, H1 2018: Â£5.9 million compares with H1 2017: Â£5.40 million). The Group continues to focus on building recurring revenues including growing subscription, cloud and managed services revenues.
Sales order intake continues to be good and the value of the Group order book measured on a 'like-for-like' basis at the end of March 2018, was over 15% ahead of the comparable order book value at the end of March 2017. The order book is much better balanced and is now at a more manageable level across the Group's businesses. The total order book, which now includes the acquisition and reflects the remaining element of the large order gained in June 2017, is now valued above Â£8 million.
The Board is committed to maintaining a strong balance sheet and Sanderson continues to generate cash in line with operating profit. Following the acquisition in November 2017 which was satisfied from the Group's own cash resources, by the assumption of Anisa's utilised five-year repayable term debt facility of Â£4.12 million and by the issue of 3,990,653 Sanderson shares (which are effectively 'locked-in' until November 2020), the net cash balance at 31 March 2018 stood at over Â£1.3 million (31 March 2017: Â£4.51 million).
Digital Retail Division
Digital Retail, which operates in very active and rapidly developing markets, continues to make strong progress. In the six-month period to 31 March 2018, revenue grew by over 20% compared with the comparable period in the prior year, profits almost doubled and the order book at 31 March was up by over 50% compared with the order book at 31 March 2017. Following a successful pilot scheme, a Phase One order has been secured with a well-known g
As a long term shareholder Ive been very patient!
Happy with the dividends but capital appreciation has been weak
Im of the opinion that the business needs scale so for me the acquisition is positive
Still has to be integrated and synergies achieved but I agree the vendors are taking a realistic view
Results due tomorrow so we may get some more information
Bit weak on top line but revenue is vanity.
Margins better, which is sanity.
Cashflow excellent which matters so much more.
Financial firepower with 6m quid burning a hole and they could easily leverage just a little.
Just need to get the right acquisitions, it requires patience to hold SND but at least we have a good dividend while we wait.
I am also surprised at the 25% drop since the results and now below the 200 day MA. The drop triggered my stop loss so am now out completely but at a profit. Should the decline continue, I will look to get back in at the appropriate time as my view on management hasn't really changed.
Yes I'd noticed the cost increase impacting on operating profit and agree with your analysis. The forward order book is also slightly down on last years interims.
Big spike in volumes both yesterday and today and the price has been punished accordingly. When investing in a small company like this, I always invest in the management not so much the product. My view is that it is extremely well managed and the board have made few mistakes so far.. If that continues then it will continue to be worth investing. I still have a target price of 101p slightly lower than the 102 I had before these interims.
Earnings were depressed by a hefty increase in costs, and some acquisition costs. Also a slightly higher tax charge. I thought these were good results and I liked the dividend hike - unlike many software companies SND charges development spend as it is incurred, with the result that profit from sales growth doesn't come through immediately. I thought the words about lengthy sales cycle were situation normal for this sort of business - there was an unusual number of large new contracts last year. The real issue is the willingness of their customers, especially the retailers, to continue upping their software spend. New software projects, however valuable, are always dumped when money is tight.
I was surprised too by the market reaction - I picked up some more as a limit order was triggered so we will see what happens.
I first bought into this in 2013 and have seen nothing during that time which altered my view that this is a very good company. It has a Quality rank of 97/100 on Stockopedia, is carefully run and a progressive dividend policy with a forward yield of over 3%. It isn't expensive either. It ticks all my boxes.
No idea, it's difficult to know what drives daily price moves on small cap AIM shares.
I'm more focused on the long term value - they will update last week of April normally which may be on peoples minds.
The other big thing is they have cash to structure some sought after acquisitions which will drive up earnings quite sharply. They are taking their time and being careful, which is great, but it will happen sooner or later and it should lead to a re-rating. Perhaps people are waking up to that as well.
Fantastic trading from JD Sports - clients of One Iota - thanks in no small part to the investment they have made in "innovative digital technology and a truly multi-channel environment"
Great to read that "We continue to invest in these areas, particularly visual merchandising systems, in store environment and creative marketing...."
That is a good read across for One Iota/Sanderson and continues to show that, whilst old style retail may be struggling, the work that Sanderson is involved in is critical to those retailers who are winning.
(Plus you get solid management, excellent track record, conservative approach, cash generative, cash at bank, AIM tax advantages etc.... ).
Some welcome clarity yesterday in a trading update from an AIM company full of actual numbers - respect.
Reassuringly, this continues to look an excellent investment prospect:
- Income: healthy dividend, current & forecast yield >3%
- Steady Growth: 10%+ organic top line and PBITA last year, with cash for acquisitive growth on top but very cautious management re splurging on acquisitions.
- Net cash and generates cash year after year - the track record here is impressive.
- AIM listed, conservative management - this is bang on perfect for IHT portfolios.
Marking the stock down based on its link to retail, which I think is what happened of late, seems exceptionally lazy analysis.
Just look at how Sanderson's clients are performing. As an example Hotel Chocolat conveniently updated yesterday - have a look how their omni channel strategy (Sanderson) is going and ask why every retailer is not investing in the sort of solution Sanderson delivers.
Manufacturing wise, the weak exchange rate should support continued investment by manufacturing companies and food and drink, Sanderson's main segment, is set for export growth if recent reports are to be believed.
This looks a very sound stock to own with limited downside and nice steady income and growth for more measured investors to achieve good long term returns.
The biggest negative is the pension deficit but this is under control and if bond yields have turned a corner (even Albert Edwards is saying this!) then the current deficit position should improve.
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