Small Cap Report - SND, OCDO, QPP, HMV, HFD, HYD, APH, MER

Tuesday, Jan 15 2013 by

A little late today, as I had a late night at one of Dave Stredder's monthly "Mello" investment evenings in Beckenham (there is also a quarterly "Mello Central" in London). Of course I remained completely sober all evening for myDryAthlon, and many thanks to the kind gentleman who handed me an £80 CAF cheque for Cancer Research last night, it made my day!

Sanderson (LON:SND)  

We were given a results presentation from software company Sanderson (SND). I liked the straight-talking management, and the company seems to me a nice steadily profitable, if unexciting company. Some growth prospects, but nothing much to get excited about. The price looks about right on a PER of 11.

Also, I would say that you have to be careful about cash balances with software companies - as in this case, and many others, the cash is actually up-front payments by customers for services that have not yet been provided. The clue is to look for "deferred income" in the creditors section of the balance sheet, then deduct that off the cash balance to strip out the cash effect of such up-front customer payments. Sanderson is about cash neutral when you do this. Important to remember this, as otherwise you end up over-valuing companies when you work out Enterprise Value if this adjustment is not made.

However, Sanderson seems a fundamentally sound company, which has repaired its balance sheet, and makes good margins, with a quality customer base. So it's good to have met management, and park it in the section of my investing memory which says: decent company, buy if/when the shares get cheaper, e.g. on a profits warning.

Quite a lot of larger cap trading statements today, so I'll have a quick skim of the retailers, since that's my background (I was the FD of a ladies wear chain for 8 years in the 1990s), and I maintain an interest in the sector.

Ocado (LON:OCDO)

Ocado (OCDO) is a stock I am very bearish on, since their business model is fundamentally flawed - they deliver Waitrose goods, but do not have exclusivity. Plus it's a low margin, competitive area. They require huge capex,…

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Sanderson Group plc is engaged in software and information technology (IT) services business specializing in digital retail technology and enterprise software for businesses operating in the manufacturing, wholesale distribution and logistics sectors. The Company's segments include Digital Retail and Enterprise Software. Its digital retail solutions include in-store technology; back-office systems for processing sales and fulfilling orders, and mobile and e-commerce solutions to underpin online operations. Its systems allow retailers to keep pace with new devices, technologies and channels, driving consumer engagement and retention. It offers Enterprise Resource Planning (ERP) software for manufacturing in general manufacturing, engineering, and food and drink processing businesses. The Company offers industry-specific software and warehouse management systems, delivering sales growth across wholesale distribution, cash and carry, fulfilment and logistics businesses. more »

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Ocado Group plc is a United Kingdom-based online grocery retailer. The Company's principal activities are grocery retailing and the development and monetization of Intellectual Property (IP) and technology used for the online retailing, logistics and distribution of grocery and consumer goods, derived from the United Kingdom. The Company offers end-to-end operating solution for online grocery retail based on technology and IP, suitable for operating its own retail business and those of its commercial partners. The Company's brands include Ocado, Ocado Smart Platform, Sizzle, Fetch and Fabled. Sizzle is a kitchen and dining store. The Company's Ocado Smart Platform is a solution for operating online retail businesses. The Company's Ocado Smart Platform combines its end-to-end software and technology systems with its physical fulfilment asset solution. more »

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Watchstone Group plc offers technology solutions to the insurance, automotive and healthcare industries. Its segments include Hubio, Healthcare (pt Health and InnoCare), and ingenie. Hubio provides integrated solutions to help organizations in the insurance and automotive sectors to build customer engagement and enable usage-based personalization. Healthcare includes ptHealth, a national healthcare company that owns and operates physical rehabilitation clinics across Canada, and InnoCare, a clinic management software platform and call center and customer service operation based in Canada. Its ingenie is an insurance broker. Using telematics technology, ingenie gives its community feedback, advice and discounts to help young drivers improve their driving skills. more »

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  Is LON:SND fundamentally strong or weak? Find out More »

1 Comment on this Article show/hide all

dangersimpson 15th Jan '13 1 of 1

Hi Paul,

Re: Halfords (LON:HFD) although the dividend is not well covered by EPS it has been covered between 1.5 and 3 times by FCF for the last 6 years. I think the key to deciding if the dividend will be maintained is estimating the future FCF not the EPS.

Obviously this means that they are investing less capex into the business than depreciation but this doesn't seem to be at a detriment to their business in the past few years.

One mistake they did make in the past was to effectively take on debt to buy back shares when the FCF didn't cover their buyback and dividend payout. Thankfully the buyback was stopped and the dividend payout maintained so a sign that they understand the importance of returning capital to shareholders when you can't deploy that capital internally in a mature business.



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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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