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Sanderson Group

Technology and managed services provider Sanderson Group (SND on AIM) announced results towards the end of November, emphasising “Group trading results and cash ahead of market expectations; increased Final Dividend”. The shares responded higher, going on to exceed 100p. Following December’s market troubles though they are currently sub 90p again…

Operations

The group is managed as Digital Retail and Enterprise divisions – the latter focused on manufacturing, wholesale and supply chain logistics. Retail solutions include in-store technology, back-office systems for processing sales and fulfilling orders and mobile and e-commerce solutions to underpin online operations. ‘Enterprise’ solutions include Enterprise Resource Planning software for modern manufacturing and food & drink processing, software systems for wholesale distribution, cash & carry and fulfilment businesses and integrated transport and warehouse management software.

For the company’s year ended 30th September 2018, Digital Retail division adjusted operating profit was £1.5 million on revenue of £8.8 million, compared to a prior year £1.2 million on £7.3 million. This reflected “greater emphasis towards utilising online and mobile shopping channels… With a number of developing sales prospects, current active pilot schemes, continued innovation and strong partnerships with existing customers, the Digital Retail business is well-positioned for further growth”.

Enterprise division adjusted operating profit was £3.5 million on revenue of £23.2 million, compared to a prior year £2.7 million on £14.3 million. However, adjusting for an acquisition, performance slightly declined – with it noted Manufacturing business sales cycles “protracted” amidst “uncertainty surrounding economic conditions”. It was though also emphasised “the business performance improved in the second half of the financial year… and is expected to continue into the current financial year” and that “Sanderson was expanded and enhanced by the acquisition of Anisa Consolidated Holdings Limited on 23 November 2017… The acquired business, which specialises in the delivery and support of world-class integrated supply chain and enterprise resource planning solutions on a global basis, has made a good start as part of the group”.

Recent Group Financial Performance

The results noted pre-contracted recurring revenues increased to accounting for 55% of total revenue, up from 52%, and after particularly £1.3 million on the acquisition, £0.6 million of pension scheme payments and £1.7 million of dividends paid, there was still £1.1 million of net cash generated before financing repayments in the year ended 30th September 2018. The year-end balance sheet showed net cash of £2 million and current assets (including £6.5 million of cash) of £15.8 million against current liabilities of £18.7 million (including deferred income of £9 million) and non-current liabilities of £8.3 million (including pension obligations of £3.8 million). An increased 1.75p per share dividend is recommended, to take the per share total for the year up to 3p, from 2.65p.

Outlook

The company noted a particular emphasis being “placed on enhancing mobile and ecommerce solutions in order to capitalise on the drive for digital transformation in the retail, wholesale distribution and logistics sectors” and that it “believes that Sanderson is well positioned in its target markets and has good sales prospects, backed by a healthy order book. This provides a good level of confidence that, at this relatively early stage of the new financial year, the group will make further progress and once again deliver trading results which are, at least, in line with market expectations for the year ending 30 September 2019”.

Post-results house broker expectations are for current year earnings per share heading above 8p – up from 7.6p delivered last year – and a dividend per share up to circa 3.3p. This suggests developing growth and income value, though there are as always risks – the most recent results also including, for example, “the largest customer of the Digital Retail division accounted for 56% (2017: 46%) of divisional revenue” and “revenue amounting to £1,038,000 (2017: £874,000) was derived from customers domiciled in Eire. Substantially all other revenue is generated within the UK”.

Sanderson itself states “in order to supplement organic growth, selective acquisition opportunities continue to be considered. Management adopts a measured approach to acquisitions and carefully considers any risks which might be involved. The board remains focused on maintaining a robust balance sheet, continuing to deliver growth, achieving ‘on target’ results, generating cash and thereby further increasing shareholder value and growing dividend returns”. This looks supported by recent results and realistic from the current valuation.

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