Sanderson Electronics Plc of Sheffield, bolstered by three acquisitions in the year, has turned in record full-year results. In the year to September 30, the software, hardware and services provider saw pre-tax profit rise 27.1% at UKP4.2m, on turnover up 44.1% at UKP34.0m. The acquisitions, Brook Street Computers Ltd, ICL Commercial Systems Ltd and Nord Group, contributed UKP5.3m operating profit on UKP9.6m turnover. Indeed gross profit at Sanderson’s existing operations actually fell 2% to UKP16.8m. Profit was hit by two companies making a loss of UKP200,000 on turnover of UKP6.0m. Paul Thompson, Sanderson’s chairman, declined to identify the culprits, but action is being taken. One company is currently repostioning to software from hardware and Thompson predicts that the two will produce a UKP600,000 profit next year. Recurring revenues from software licence fees and service and support contracts represented UKP13m of the UKP34m turnover and covered 72% of overheads. This percentage will fall with the addition of the acquisitions, but Thompson will be content with 66%. Acquisition is a way of life for Sanderson – 16 in its 12-year history. Some have proved disastrous, most notably the big stake in General Automation Inc, and since the results, Sanderson has reduced its stake to 6% in exchange for a 51% in SGA Pacific Ltd (CI No 2,528), renamed Sanderson Pacific Ltd. This pattern of acquisition has generated growth but left Sanderson’s share price apparently undervalued at 85 pence, though it rose 1.5p on the results, and a market capitalisation of UKP33m. Analysts do not like growth dependent on acquisition, as it depends on a constant supply of companies on the market. If the supply dries up will growth stall? After the difficult period of recession, the shift away from hardware to software and the move to open systems, Thompson is ready to significantly move the company on again. And though double digit organic growth is possible, Sanderson will continue to expand by acquisition, while it can buy companies at low prices and move them forward. If the right things come along, we can take them, Thompson says, but points out that full-year contributions from the recent acquisitions, including Sanderson Pacific, would give Sanderson turnover of UKP55m, up 62%, and pre-tax profits of UKP5.5m, up 32% on the year just reported. Despite the acquisitions, Sanderson has not diluted shareholders’ holdings, with shares in issue up by only 5m to 38.5m in the six years since flotation. Payment to minorities was UKP179,000 this year and Thompson expects this to reach UKP600,000 next year. Full-year dividends are up 12% at 2.8 pence.
