The market volatility we’ve seen over the last couple of weeks has spooked some investors. But the companies I’m looking at today have sailed through these rough seas without any trouble at all.
Both firms have delivered steady growth and rising dividends in recent years, but remain very affordable.
A ‘picks and shovels’ business
During the gold rush, canny entrepreneurs found that it was more profitable to sell essential supplies to would-be gold miners than to mine the gold themselves. Software firm Sanderson Group (LSE: SND) seems to be taking a similar route, with equal success.
It provides a range of software systems used by retailers in their stores, warehouses and online operations. By selling licences upfront and then delivering services, this Coventry-based firm is able to generate enviable free cash flow without having to take on the risks of the retail business, such as long leases, stock and logistics.
Shares in this group rose by more than 5% today after it issued a strong trading statement. The integration of Anisa, a specialist supply chain software business acquired in November, is proceeding well. Alongside this, Sanderson’s existing businesses are also growing. During the four months to 31 January, like-for-like sales rose by 5% and comparable operating profit climbed 10%.
Why I’d buy
Sanderson’s earnings per share have risen by an average of 12% per year since 2012, while its dividend has risen by an average of 17% per year. Despite this, dividend cover remains at a healthy 2.3 times forecast earnings.
Analysts expect earnings per share to climb 15% to 5.99p this year. A dividend of 2.6p per share is expected for the current year.
These projections give the stock a forecast P/E of 15 with a prospective yield of 3%. In 2018/19, double-digit earnings growth is expected to reduce this P/E rating to 13. I believe the firm’s growth and financial performance mean that it deserves a buy rating.
Solving problems proves profitable
What do you do when you have an ageing cable television network and need to start offering internet-enabled services?
One option is to call Amino Technologies (LSE: AMO), which will provide the software you need to migrate your customers onto a more modern system, often by remotely upgrading their set-top boxes.
This is just one of the television-related services Amino offers its clients, who are happy to pay to avoid a more costly and disruptive rollout of new hardware.
This could be the right time to buy
Last week’s full-year results showed a 12% rise in earnings per share last year, with pre-tax profit 10% higher at £11.2m. The group’s net cash balance doubled to £13m, providing a solid foundation for a 10% dividend increase.
The board expects the company to deliver “sustainable profitable growth” this year and analysts’ forecasts indicate that the stock trades on a P/E of 14, with a prospective yield of 3.7%.
Amino’s performance over the last five years has been impressive. And while past performance is no guide to the future, I think there’s a good chance this company will continue to fire on all cylinders, rewarding loyal shareholders with further gains.