Daily Stock Market Report (Wed 30 April 2025) - IGR, SRB, GNS, TW., SDG, ABDN

Good morning and welcome to Wednesday's report - the Agenda is now complete. It's an awfully long list to digest but the good news is that there are hardly any profit warnings!

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Companies Reporting

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Graham's Section

Aberdeen (LON:ABDN)

Up 1% to 148.2p (£2.7bn) - Q1 2025 AUMU and flows update - Graham - GREEN

Let’s briefly check in on this major fund manager, to get a reading on investor sentiment:

Aberdeen Group plc ("Aberdeen" or the "Group") is today providing an update on its Q1 assets under management and administration (AUMA) and net flows.

The headline: AUMA fell by 2% in Q1, or £11bn, to £500bn.

Half of the decline was due to net outflows, with the rest coming from the weakness in financial markets in Q1.

The bright spot, as per usual, is interactive investor which saw net inflows of £1.6bn. Its customer numbers are up 9% year-on-year, with SIPP customers up 29%.

But the story is not so bad at the Investments division, either.

As I noted recently, this division saw net outflows of only around 1% of AUM in 2024.

And while it saw more net outflows in Q1, it is now positive year-to-date thanks to a £6bn mandate win in April, for their quantitative strategies.

So again I wonder if Aberdeen is giving us some clues that investor sentiment is not so bad after all?

CEO comment excerpt:

"Our strategy is to become the UK's leading wealth business and to reposition our Investments business to areas of strength and market growth. So far this year, we have made good progress against these objectives, despite the current heightened levels of market uncertainty.

"interactive investor has seen significant growth in new customers, and in trading volumes, which have risen to record levels during the recent period of market volatility.

Outlook: targeting adj. operating profit of over £300m in 2026. On course to meet target of £150m of annualised cost savings by the end of this year..

Graham’s view

I have moderated my view on most fund managers to AMBER/GREEN, as most of them are suffering very poor momentum in terms of flows, and the competitive environment is extremely difficult. So despite their cheapness, I’m no longer taking an outright bullish stance in every case.

Aberdeen is a case where I think I can stay fully positive, for a few reasons.

Firstly, its scale sets it apart. It’s 10-20x the size of the other fund managers I cover. In plain English, it’s in a different league to the others.

Secondly, the inclusion of interactive investor means that it owns a high-quality platform business in addition to the advisor/investments businesses. These platforms typically trade at higher multiples than fund managers.

Thirdly, the flows at Aberdeen have not been all that bad. It’s almost standing still - which is pretty good.

Finally, the valuation doesn’t put me off:

Stockpoedia categorises it a a “Turnaround” stock (high value and high momentum), which is considered to be a winning style. I think Aberdeen is a winner in the asset management sector - and I’m glad I can call it by that name now, instead of using a strange assortment of letters without enough vowels!

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Roland's Section

Sanderson Design (LON:SDG)

Down 6% to 40p (£29m) - Full Year Results - Roland - AMBER/GREEN

Sanderson Design Group PLC (AIM: SDG), the luxury interior furnishings group, announces its audited financial results for the year ended 31 January 2025.

(For the backstory on Sanderson’s rise and fall, check out this recent review by Mark.)

Today’s results are not exactly sparkling, but the question for investors will be whether the value investment case remains intact.

Let’s start with a look at the numbers to understand what happened last year.

FY25 results summary: sales fell sharply last year, driven primarily by a drop in the company’s own branded sales:

• Revenue -7.6% to £100.4m

• Adjusted pre-tax profit -63.9% to £4.4m

• Reported pre-tax loss of £(13.9)m

• Dividend -57% to 1.5p per share

• Net cash £5.8m (FY24: £16.3m)

The reported loss is due to the £16.3m goodwill impairment on Clarke & Clarke (acquired 2016):

The valuation of brands across the interior furnishings industry has declined since 2016 and this non-cash impairment of Clarke & Clarke aligns the brand to the current industry environment. The Board remains confident in the future performance of the Clarke & Clarke brand, in its licensing potential and its overall importance to the Group's brand portfolio.

Without this non-cash impairment, the group would have reported a pre-tax profit of £2.4m last year, arguably supporting a view that earnings could be close to a cyclical low:

Trading commentary: while demand slowed for the group’s own brands and manufactured goods, licensing revenue set a new record, helped by deals with Next and J Sainsbury. Licensing carries a near-100% margin and thus this performance effectively protected the business from what would otherwise have been a much deeper loss last year.

Across its business, Sanderson says it’s now focused on a greater shift to digital printing, modernising its factories (with reduced headcount) and capturing the growth opportunity offered by US markets. While tariffs are not expected to have a major direct impact, they are seen as a broader macro risk that could affect demand.

Balance sheet: I calculate NAV of £66.4m or a tangible net asset value of £53.5m. Both are significantly higher than the current £29m market cap.

Happily, Sanderson continues to benefit from a net cash position, albeit reduced significantly last year to £5.8m (FY24: £16.3m).

This £10.5m cash outflow was made worse by adverse working capital movements and a one-off c.£2m pension contribution. However, ultimately this free cash outflow was driven by the loss of profitability caused by lower volumes through Sanderson’s Brand/Manufacturing division (the company’s factories manufacture for its own brands and third parties).

Brands were a particular area of weakness:

With cost cutting and headcount reductions now in force, I’d hope that profitability and cash generation will improve this year.

A reduction in the group’s £27m inventory balance could also release some working capital – management admits that inventories rose last year due to higher volumes and are now “above their optimum level”.

Given that cost of sales were £32m last year, this implies that as much as 10 months’ of stock is being carried. Even after deducting an allowance for raw materials and work in progress, this does look too high to me.

Outlook: the company says that sales have started strongly in the USA this year, with “core brand sales showing double-digit revenue growth” compared to the same period last year.

Sales in the UK and Europe are said to have been in line with expectations during the same period.

However, the announcement of tariffs at the beginning of April has “impacted order intake in all regions”.

My reading of this is that there’s a risk of a further downgrade to expectations at some point.

However, given the uncertainty over the tariff endpoint and impact, I think it’s reasonable for management to have left expectations unchanged at this point:

At this early stage in the current financial year, the Board continues to anticipate that the full year outturn will be in line with its expectations.

Roland’s view:

While there’s clearly some uncertainty about near-term demand, I think that Sanderson’s combination of balance sheet strength and valuable intellectual property assets makes the shares a tempting value play at current levels.

I estimate a tangible net asset value of 77p per share from today’s results. With the stock trading at 39p as I write, I think there should be a reasonable margin of safety from current levels, with decent upside if demand for the company’s own goods does recover.

The main risk I can see is that the manufacturing business will remain a drag on profitability and – potentially – be loss making.

However, on balance Stockopedia’s Contrarian rating seems appropriate to me.

I’m happy to take a moderately positive view, based on today’s results.