I’ve liked the look of software and information technology (IT) company Sanderson Group (LSE: SND) for some time. The company scores well against traditional quality indicators, has modest debt and attractive operational momentum. There’s a decent five-year record of steady growth in revenue, normalised earnings, operating cash flow and the dividend.
The good news keeps on coming
Today, we received more good news from the firm in the form of the half-year results report. Sanderson earns its living as a specialist provider of digital technology and software solutions for the retail, wholesale, supply chain logistics, food and drinks processing and manufacturing sectors, and things have been going very well.
Compared to the equivalent period last year, revenue came in 18% higher, operating profit increased by 34%, adjusted earnings per share moved more than 32% higher and the company improved its cash balance by almost 137% to £3.29m, which beat the directors’ previous expectations. They were so pleased with the trading outcome and the outlook for the future that they slapped 20% on the interim dividend.
Chief executive Ian Newcombe explained in the report that despite the current buoyant trading, the directors are being cautious about the general economic environment and are monitoring conditions in the market. But he thinks Sanderson is “well positioned” to make further progress for the year to September 2019 because of the strong trading momentum in the first half of the year, the “healthy” order book, high recurring revenue, the cash-backed balance sheet, and the firm’s reputation trading record.
Success pays dividends
Newcombe pledged to channel future success into the ongoing progressive dividend policy, which could reward shareholders well if the company can repeat its previous performance. Over the past five years, the dividend has risen by 100% and the share price is around 80% higher than it was. A performance like that could indeed make Sanderson a millionaire-maker share if it can be repeated going forward.
Since the end of the period, the firm announced the £4m acquisition of Lancashire-based Gould Hall, a specialist provider of logistics solutions. The acquisition “further builds on the Group’s capability” and the directors expect it to be earnings enhancing in its first full financial year under Sanderson ownership.
The firm aims to target “selective” acquisition opportunities in the future, which should add to the robust organic growth we’ve been seeing. I think this dual approach to growing the business looks set to pay dividends down the line, both literally and metaphorically. Indeed, in the report today, the directors make many references to how they intend to channel the firm’s ongoing success into the progressive dividend policy, which I believe is a strategy that will drive up the share price too, giving shareholders a double kicker when it comes to total returns. I like Sanderson a lot and believe it’s worth further research with a view to me buying some of the shares.
