Companies: SND   

As predicted in a share price-sapping profit warning, technology counter Sanderson reported flat maiden annual figures to the end of September last month.

During the summer, Sanderson, which provides software/IT services to businesses with sales between £5m and £250m, experienced a slowdown in the discretionary spend of existing manufacturing clients. Although the full year result matched the previous years’ numbers, the figures slightly disappointed the market – turnover was stagnant at £15.5m, pro-forma pre-tax profits uninspired and unchanged at £2.7m – not a great start for a business only floated last December.

Nevertheless, there are many positive points to highlight, starting with experienced chairman Chris Winn. Yes, there was slower ‘extra’ spend from long-standing manufacturing customers, but Sanderson generated organic growth from most markets, enjoyed stellar levels of repeat business, still managed to bag over £2m of orders from new clients (up 17% on 2004) and turned healthy pre-tax margins of 17.4%. Cash generated from operations (stripping out AIM admission costs) exceeded 100% of operating profits and the shift from private equity ownership helped pare debt from £18.7m to only £1.6m. Sanderson also proposed a 2.5p total dividend, giving the shares income appeal.

A first AIM acquisition has been integrated and looks to be performing well, and there are opportunities to wring value from further deals, even though the IT market is seeing only modest growth in spend.

Taking last year’s 4.66p earnings figure, Sanderson offers a budget p/e of 11.6, against a sector average of 25. The warning alienated some – Growth Company Investor believes Sanderson remains a solid investment. Hold.