Sanderson Group reports 30.0% Net Income growth and 11.1% Revenue growth

30 Nov 2016 • About Sanderson Group ($SND) • By InTwits

Sanderson Group reported FY2016 financial results today. Overall the company's long term financial model is characterised by the following facts:

Sanderson Group has low CAPEX intensity: 5 year average CAPEX/Revenue was 1.0%. At the same time it's in pair with industry average of 3.0%.
CAPEX is quite volatile: 0.25 in FY2016, 0.30 in FY2015, 0.11 in FY2014, 0.045 in FY2013, 0.19 in FY2012
The company has highly profitable business model: ROIC is at 12.0%

Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

Sanderson Group ($SND) key annual financial indicators

mln. £	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	13.374	13.828	16.411	19.182	21.320	11.1%
Gross Profit	11.186	12.117	13.928	16.218	17.921	10.5%
SG&A		4.841	5.558	5.939	6.467	8.9%
EBITDA	2.157	2.427	2.510	3.869	4.251	9.9%
Net Income	2.406	1.691	1.598	1.867	2.427	30.0%
Balance Sheet
Cash	4.066	3.662	6.159	4.607	4.344	-5.7%
Short Term Debt	0.000	0.000	0.000	0.000	0.000
Long Term Debt	0.000	0.000	0.000	0.000	0.000
Cash flow
Capex	0.194	0.045	0.113	0.296	0.254	-14.2%
Ratios
Revenue growth	-4.9%	3.4%	18.7%	16.9%	11.1%
EBITDA growth	8.3%	12.5%	3.4%	54.1%	9.9%
Gross Margin	83.6%	87.6%	84.9%	84.5%	84.1%	-0.5%
EBITDA Margin	16.1%	17.6%	15.3%	20.2%	19.9%	-0.2%
Net Income Margin	18.0%	12.2%	9.7%	9.7%	11.4%	1.7%
SG&A, % of revenue		35.0%	33.9%	31.0%	30.3%	-0.6%
CAPEX, % of revenue	1.5%	0.3%	0.7%	1.5%	1.2%	-0.4%
ROIC	8.8%	10.8%	7.7%	10.6%	12.0%	1.4%
ROE	12.5%	8.3%	6.8%	7.1%	9.4%	2.3%
Net Debt/EBITDA	-1.9x	-1.5x	-2.5x	-1.2x	-1.0x	0.2x

Revenue and profitability

The company's Revenue jumped on 11.1% in FY2016. EBITDA Margin showed almost no change in FY2016.

Gross Margin showed almost no change in FY2016. SG&A as a % of Revenue decreased slightly on 0.63 pp from 31.0% to 30.3% in FY2016.

Net Income marign increased slightly on 1.7 pp from 9.7% to 11.4% in FY2016.

Capital expenditures (CAPEX) and working capital investments

In FY2016 Sanderson Group had CAPEX/Revenue of 1.2%. Sanderson Group showed small growth in CAPEX/Revenue of 0.87 pp from 0.33% in FY2013 to 1.2% in FY2016. It's average CAPEX/Revenue for the last three years was 1.1%.

Return on investment

The company operates at good ROIC (12.05%) while ROE is low (9.41%). ROIC increased slightly on 1.4 pp from 10.6% to 12.0% in FY2016. ROE increased on 2.3 pp from 7.1% to 9.4% in FY2016.

Leverage (Debt)

The company has no debt. Cash decreased on 5.7% in FY2016.

Valuation

Sanderson Group's trades at EV/EBITDA 7.9x and P/E 15.7x while industy averages are 15.6x and 19.1x. The company's EV/(EBITDA-CAPEX) is 8.4x with the industry average at 19.0x.

Appendix 1: Peers in Software & Computer Services

Below we provide Sanderson Group benchmarking against other companies in Software & Computer Services industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Coms ($COMS)		46.8%	763.3%	110.4%	36.1%
Centralnic Group ($CNIC)	15.9%	4.0%	98.9%	71.3%
Proactis Holdings ($PHD)		7.0%	26.2%	69.6%	12.5%
Progility ($PGY)				51.0%	3.2%
Galasys ($GLS)	14.3%	20.9%	311.1%	33.0%
Median (44 companies)	10.2%	6.8%	4.5%	3.6%	8.8%
Sanderson Group ($SND)		3.4%	18.7%	16.9%	11.1%

Top companies by Gross margin, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Lombard Risk Management ($LRM)	99.0%	98.8%	99.2%	98.6%	99.3%
Phoenix It Group ($PNX)	97.0%	97.2%	97.6%	97.9%
Wandisco ($WAND)	91.8%	80.3%	80.7%	93.2%
Netcall ($NET)	88.2%	89.7%	91.0%	90.9%	91.2%
Idox ($IDOX)	90.4%	90.8%	89.4%	89.3%
Median (37 companies)	62.7%	62.0%	58.0%	60.2%	59.3%
Sanderson Group ($SND)	83.6%	87.6%	84.9%	84.5%	84.1%

Top companies by EBITDA margin, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Mail.Ru Group Ltd ($61HE)	43.1%	47.4%	50.5%	34.6%
Dotdigital Group ($DOTD)	31.4%	39.4%	29.2%	32.0%	30.4%
Idox ($IDOX)	30.9%	26.1%	26.0%	28.6%
Galasys ($GLS)	44.0%	83.6%	32.6%	28.5%
Oxford Metrics ($OMG)	15.7%	6.0%	14.7%	28.4%
Median (44 companies)	13.8%	13.0%	12.0%	12.3%	5.4%
Sanderson Group ($SND)	16.1%	17.6%	15.3%	20.2%	19.9%

Top companies by CAPEX/Revenue, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Rapidcloud Intl ($RCI)	1.0%	23.1%	11.6%	19.6%
Coms ($COMS)	0.5%	0.9%	3.4%	7.5%	0.1%
Csf Group ($CSFG)	1.5%	4.0%	2.4%	7.1%	4.9%
Nasstar ($NASA)	17.9%		2.1%	5.2%
Unisys Corp ($USY)	2.1%	2.5%	4.1%	5.0%
Median (44 companies)	1.5%	1.6%	1.9%	1.1%	1.1%
Sanderson Group ($SND)	1.5%	0.3%	0.7%	1.5%	1.2%

Top companies by ROIC, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Triad Group ($TRD)	4.1%	-3.8%	24.5%	61.5%	74.4%
Dotdigital Group ($DOTD)	26.4%	38.0%	28.5%	31.4%	28.9%
International Bus Mach Corp ($IBM)	36.1%	31.0%	28.1%	25.7%
Galasys ($GLS)	58.7%	60.9%	40.8%	22.2%
Instem ($INS)	20.6%	14.7%	10.9%	20.4%
Median (44 companies)	13.5%	11.6%	9.8%	4.3%	8.4%
Sanderson Group ($SND)	8.8%	10.8%	7.7%	10.6%	12.0%

Top companies by Net Debt / EBITDA


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Progility ($PGY)	2.0x		1.8x	12.8x	6.8x
Parity Group ($PTY)	4.7x		4.9x	5.1x
Nasstar ($NASA)	-5.3x		0.0x	1.9x
Phoenix It Group ($PNX)	4.3x			1.9x
International Bus Mach Corp ($IBM)	0.9x	1.2x	1.4x	1.7x
Median (34 companies)	-0.4x	-0.4x	-0.3x	-0.5x	-0.8x
Sanderson Group ($SND)	-1.9x	-1.5x	-2.5x	-1.2x	-1.0x

Sanderson Group stock price chart

Sanderson Group financials

mln.	FY2010	FY2011	FY2012

Revenue	26.999	14.059	13.374
EBITDA	3.444	1.991	2.157
Net income	0.272	0.804	2.406
CAPEX	0.199	0.093	0.194
Debt	8.084	7.335	0.000
Cash	0.248	0.619	4.066

About Sanderson Group

Sanderson Group plc provides software solutions and information technology (IT) services primarily for the multi-channel retail and manufacturing sectors in the United Kingdom and Ireland. It offers Elucid, a multi-channel retail software that integrates e-commerce, m-commerce, marketplace, retail, and mail order sales with back office fulfilment operations, as well as Elucid-EPoS for in-store retail operations, multi-channel order and customer relationship management software, and warehouse management and supply chain software. The company also provides Swords, a software to manage wholesale, and cash and carry operations, such as telesales and sales order processing, purchase order processing, till order processing, stock and warehouse management, radio frequency handheld system, voice order picking, bonded warehousing, integrated sales, purchase and nominal ledgers, business intelligence, online ordering, and mobile and van sales. In addition, it offers Unity ERP (enterprise resource planning) software solutions/MRP systems, including Unity ERP for engineering and discrete manufacturing; UnityF8 for business and production management in the food production industry; and UnityExpress, a small business ERP software for manufacturing and distribution businesses. Further, the company provides Payroll Bureau Service, an outsourcing service for HR payment needs; and support and maintenance contracts, training, consulting, and implementation services. Sanderson Group plc was founded in 1983 and is headquartered in Coventry, the United Kingdom.