Strategic acquisition

In a move aimed at creating both revenue upside and cost saving synergies, Sanderson has acquired Anisa Consolidated Holdings, a holding company that specialises in the provision of information technology-based offerings across the entire supply chain management market, for a maximum value of £12.0 million. The acquisition was made at an attractive valuation of 5.8x adjusted EBITDA, and made with the objective of scaling-up Sanderson’s enterprise division. We update our forecasts for FY18, and we continue to classify the shares as a hybrid growth and income stock, with the shares offering investors exposure to the high-growth Enterprise Resource Planning software market and a decent prospective dividend yield of 4.1%.

Acquisition of Anisa Consolidated Holdings

Anisa Consolidated Holdings provides offerings that enable clients to electronically operate, control and connect all components of their supply chain, including design, engineering, manufacture, warehousing, distribution and service activities from their suppliers to their customers. For the 12 months ended 31st Dec. 2016, Anisa reported adjusted EBITDA of £2.06m on revenue of £10.04m. Similar to Sanderson Group, Anisa has a good level of recurring revenue, with pre-contracted recurring revenue representing in excess of 50% of total revenue. As at period end, Anisa had net assets of £6.54m and net debt of £2.7m. The purchase consideration comprises an initial £3.39m, made up of c.£2.06m in cash and the remaining through the issue of new Sanderson shares, valued at 70p, a 7.7% premium to the prior day’s close price. A further consideration of £1.82m is payable to Anisa share option holders, to be satisfied by cash or new shares, at a price of 70p, by 31st Dec. 2017. All new shares will be subject to a lock-in period of three years. Sanderson is also taking over Anisa’s five-year repayable term debt facility of £4.12m (final quarterly payment being due in 2020) and its cash balance of in excess of £1m. Furthermore, loan notes with a coupon of 5% to the value of £1.05m will be repaid by Oct. 2018. Deferred considerations, totalling £1.63m, are payable in three tranches, with the final payment scheduled for April 2019, dependent upon some pre-agreed trading performance criteria.

Financial forecasts

For FY18, following the acquisition, we now forecast adjusted EBITDA of £6.1m (from £5.0m) on revenue of £30.4m (from £23.0m). We maintain our DPS forecast of 2.9p. A key risk to our forecasts includes a deterioration in the economic environment.

Valuation

The shares trade at a 61% discount to its peers on an EV/EBITDA basis (6.7x vs 17.1x), according to Bloomberg.