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Buy Sanderson at 71p - target 90p+

By Steve Moore | Saturday 9 September 2017

Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

When ths share tip went out yesterday on the shares were 67 offer. They are now 71p offer but still cheap. But to make sure you get in first ister now for FREE ahead of the next hot share tip at HERE. Now to why Sanderson (SND) shares are still cheap...

Shares in Sanderson slipped in August for no good reason at all. I'd expect a year end trading statement soon will show just how solid the fundamentals are at this profitable digital retail technology and enterprise software for businesses  group which pays a good dividend and sits on net cash.

The only news of late out of this Coventry based group has been a change of finance director, Richard Mogg has replaced Adrian Frost. Frost’s departure though is not a hasty one to cause concern – it having been announced in May that, having been with the group since 2000 and served as Finance Director since 2005, he would be moving on.  The senior management at Sanderson, led by Christopher Winn are veterans and reassuraingly grey haired. A safe pair of hands.

In terms of financials this is not a group that tends to serve up nasty surprises. At the half year (to March 31 2017) it delivered adjusted earnings per share of 2.4p and for the full year just about to end I am looking for 5.5p. The mood music as the half years were published seems solid if not euphoric. The results statement included “there does seem to be a slightly more considered approach from some customers”, it also stated that “the general economic environment still seems good” – and chatting to management they remained optimistic about the growth prospects.

The results reflected both digital retail and enterprise software progress and the former ended the period with an increased order book of £0.84 million and it stated “with a number of good sales prospects, active pilot schemes and strengthening partnerships with existing customers, the Digital Retail business is well-positioned to take advantage of continued growth in this market”, and the latter with a £1.93 million order book “better balanced over the different businesses”.

The announcement also noted overall “recurring revenues from pre-contracted licence and ongoing support services grew to £5.40 million” and that “the board remains committed to maintaining a progressive dividend policy”. The half-year dividend per share is increased by 10% to 1.1p. For the company’s year commencing next month, current forecasts are for 5.8p of earnings per share and a dividend per share of 2.9p (2016: 2.4p, 2017E: 2.6p). The interims also saw, even after £0.8 million of dividends paid, cash (net) edged up to £4.5 million (8.2p per share).

I would like to see some of that cash returned to shareholders as a special dividend but Winn won't allow that - he is far too conservative. But at a 71p offer the, almost current year, PE is 12.2 (10.8 ex cash) and the yield is a more than decent 4.1%.   For a cashed up, growing, well business the rating is far from demanding. Buy - target price 90p.

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