7:59 cut – SND

Sanderson (SND) – HY 2019 Trading Update

The good:

  • “Ahead of management’s expectations” with underlying (with acquisition, without accounting changes) operating profit growing at above 20% pa.
  • FY2019 EPS forecasts had already been upgraded following each of the FY2018 trading update, the FY2018 results and Q1 trading update (AGM statement)
  • FY EPS forecasts had already been upgraded in December / February
  • Net cash up approx £1.8m over the year to £3.29m (less £0.5m deferred consideration for recent acquisition paid after the period end), with good cash conversion.
  • Cash, cashflow and facilities available for further acquisitions.
  • Manufacturing sales order intake grew despite warnings of protracted sales cycles in the Q1 update.
  • Arguably, the share price hasn’t yet reacted to previous positive trading updates.
  • Forward PE is 11, PEG is 0.6.

The bad:

  • Bricks-and-mortar retail exposure. “Digital Retail Division” growth only described as “double-digit” (despite “increased investment”). However with the recent purchase this bricks-and-mortar retail is nonetheless a shrinking portion of the business.
  • Somewhat cautious FY outlook (they mentioned Brexit in earlier updates). They do not (yet) say they expect to exceed previous expectations.
  • Negative tangible book value
  • Have relied on acquisitions for recent growth, with growth expected to slow in FY2019.
  • Operating margins weakened in 2018

I have a small holding and will be looking to add on the open.

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