Sanderson Group

Despite a difficult trading environment, software firm Sanderson (SND) is enjoying a recovery in demand; indeed, it boasts of a prospective new business pipeline worth £20m.

Coventry-based Sanderson develops software for the manufacturing and retail sectors. In the six months to September, pre-tax profits leapt to £395,000 (2009: £34,000) as sales held steady at £13.1m (£13.3m). Of more significance is the fact that customers are starting to spend again – the order book is up 10% to £3.36m.

Chairman Chris Winn says, 'We are enjoying the brightest outlook in manufacturing since our IPO.' This arm is 25% of the business and provides business-critical solutions to clients such as Associated British Foods and printing group Communisis.

In multi-channel retail, Sanderson has more than 600 clients spanning catalogue shopping, mail order and wholesale distribution. Here, margins edged higher, with recurring revenues covering two-thirds of its overheads. The retail division has found smaller retailers to be more active. It is also winning more work in areas such as the NHS, where the use of its software can slash food wastage.

House broker Charles Stanley forecasts full-year pre-tax profits of £2.4m, EPS of 4.7p and a total dividend payout of 0.8p. We suggested buying the shares at 27.5p last November, but the price has only nudged a shade higher since. With prospects improving, Sanderson remains attractive. Long-term buy.