We had a management meeting with Sanderson after their successful round of investor updates post their 1H 2018 results. The group’s trading results were slightly better than management’s expectations, with both revenue and adj. operating profit increasing 34% YoY. On a like-for-like basis, excluding the Anisa acquisition, the top-line grew 3.6% (after adjusting for a small exceptional item in 2017) and operating profit by 12%, thanks to improved efficiency and cost of delivery. The management has a good level of confidence in making further progress for the remainder of FY2018, supported by a stronger and a more balanced order book and growing sales prospects. The total order book stood at £8.6mln with organic growth of 16%, largely driven by the Digital Retail division. Aside from consistently strong demand from existing customers for the mobile/omni-channel solutions, the company has secured a high-quality global luxury brand for a multi-year contract to deliver a digital store transformation. Within the Enterprise division, the flattish performance of the Wholesale Distribution business was offset by an improved performance by the Manufacturing business. Anisa has integrated well into the group, further enhancing Sanderson’s solutions and services.
The group’s growth strategy is a combination of organic growth via continued product development and selective acquisitions. The company plans to continue investing across the business with a key emphasis on mobile and e-commerce solutions to capitalise on digital transformation trends in retail, wholesale distribution and logistics. While the ongoing Brexit negotiations could lead to some uncertainty, the management is not overly concerned given the positive feedback from Sanderson customers and the healthy order book and balance sheet. We maintain our earnings estimates, currently not incorporating the company’s updated three-year plan. However, integrating longer-term financial targets, the fair value per share derived by DCF and DDM valuation implies 10-20% upside from the current share price in our view.
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