Sanderson

Growing software and IT services specialist Sanderson has warned that annual sales and profits to September will disappoint following recent slowdown in the retail sector.

In a mixed trading missive, Sanderson – now focused on the high-growth ‘multi-channel’ (online trading and mail order) segment of retail as well as the manufacturing sector – said revenues would weigh in at around £27.5m, producing creditable adjusted pre-tax profits ‘of not less than £3m’. When confirmed next month, sales will still represent 52% growth year on year, although both turnover and profit will be below analysts’ estimates of £30m and £3.9m respectively and 2009 forecasts have been downgraded.

Performance within the manufacturing and multi-channel sales businesses met expectations last year, but there was a shortfall from the group’s retail operations, ‘mainly at the smaller end of the market’, where several clients delayed or withdrew projects and software licence purchases. This trend was marked towards the tail end of the year, traditionally a highly profitable period.

Despite this blip, the overall picture at Sanderson is anything but doom and gloom. Cash flows remain strong – the annual operating profit to cash conversion rate was 100% – and net bank debt is now less than £11m.

Moreover, Sanderson’s business model remains robust, based on a high proportion of recurring revenues from a broad and established client base. Its shares, recommended by Growth Company Investor at 52.5p in 2007, have had a disappointing ride, though we still like Sanderson’s solid income and growth credentials long term. Based on an expected 2.7p dividend, the yield on offer is nearly 12%. Sit tight.

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