Today’s news from Sanne Group (LSE: SNN) is positive. The firm’s full-year results reveal revenue up 28% on the previous year and a 39% uplift in adjusted operating profit before exceptional items.
Trading well
Sanne earns its living as a specialist global provider of outsourced corporate and fund administration, reporting, and fiduciary services, with offices in Jersey, Guernsey, London, Luxembourg, Dublin, Dubai, Hong Kong, Shanghai and Singapore. That sees the firm target alternative asset markets that have high barriers to entry and require specialist expertise to service. The company’s key clients include alternative asset managers, financial institutions, family offices and corporates.
Such arcane operations make it hard for me to estimate what the Sanne’s profits may be in the future, but no more than is the case with banks such as Barclays (LSE: BARC). Both firms have low visibility of earnings. However, I can see that Sanne is doing well now.
Sanne’s chief executive tells us that the firm’s markets are uncertain but there are opportunities for the company to grow. He points to a ‘healthy’ amount of business wins during 2015 as evidence of the firm’s trading momentum.
Strong balance sheet
One of Sanne’s strengths as a potential investment is the firm’s robust-looking balance sheet. The company floated on the stock exchange during 2015 and used some of the proceeds to pay off much of its previous debt. Now borrowings sit at around three times the level of operating profits, but that debt is offset by a slightly larger pile of cash running around 3.3 times operating profit.
That’s a much lower level of financial gearing than we tend to find with the big London-listed banks such as Barclays, and it’s one of the things that I find attractive in Sanne. City analysts following Sanne expect earnings to shoot up by 25% during 2016 followed by a further 17% uplift in 2017. That compares well with Barclays’ expected growth in earnings at 6% and 34% respectively. Barclays, I would argue, is looking at cyclical recovery, whereas Sanne is growing its business to new heights. That distinction makes the two firms very different investment propositions.
Valuations
At today’s share price of 350p, Sanne trades on a forward price-to-earning (P/E) ratio of just over 22 for 2016 dropping to around 19 for 2017. There’s a 2.7% dividend yield and forward earnings should cover the payout about 1.6 times.
At 161p, Barclays sits on a forward P/E rating of just over nine for 2016 reducing to below seven during 2017. The forward dividend yield runs at 2.6% covered more than four times by anticipated earnings. To me, Barclays looks as if it is priced as a cyclical firm during the mature phase of the macroeconomic cycle and Sanne looks priced for ongoing growth.
The market, I suspect, fears another cyclical plunge in profits at Barclays and so do I.
That’s why I think Sanne is well worth further research as a potentially better long-term investment than Barclays.
