Better Than Expected Trading Performance

Reporting at its Annual General Meeting, Sanderson Group reported that revenues for the four months ended 31st January 2016 increased by in excess of 10% on the comparable period a year earlier. The software and IT services group added that it remains confident in making continued progress in the current financial year ending 30th September 2016. We note that revenue growth in the first four months (>10%) is greater than our forecast for the full-year (7%), and revenue growth in H2 is typically greater than that in H1. Nevertheless, remaining prudent, we have maintained our forecasts. With the shares offering investors exposure to the high-growth Enterprise Resource Planning software market, as well as offering a decent prospective dividend of 3.2%, we continue to classify the shares as a hybrid growth and income stock.

AGM Statement

Total sales intake increased by in excess of 15%, reflecting an increased level of investment in sales and marketing. Total order book increased by 37% to £3.21m since year end (FY15: £2.35m). Revenue from new customers increased to £1.5m in the four month period, which compares to £1.4m for the whole of the last financial year. The company said that a number of new sales prospects within the digital retail business are being pursued and are expected to close in H2. It added that the Sanderson Enterprise businesses have made a very strong start to the current year and have converted a number of previously delayed projects, with particularly strong order intake from the food & drink, logistics and wholesale cash & carry sectors. The company has recommended a final dividend of 1.2p per share, taking the total dividend for the year to 2.1p, representing an increase of 16% on last year, which is in-line with our expectation.

Financial forecasts

For FY16, we continue to forecast revenue of £20.50m, gross profit forecast of £17.43m, adjusted EBIT of £3.69m and an adjusted PBT of £3.46m. We are forecasting a DPS of 2.30p. For FY16, we are forecasting revenue of £21.50m and gross profit of £18.28m. We are forecasting an adjusted EBIT of £3.96m and adjusted PBT of £3.81m. We anticipate DPS of 2.5p.

Valuation

The shares are trading at a 22% discount to the Software & IT services sector on an EV/EBITDA basis (10.7x vs 13.8x). A key risk includes a deterioration in the economic environment.