Sanne reported underlying net revenue of £90.7m, up 12.5% at constant exchange rates. That reflects five acquisitions plus organic growth of 4%, as new business increased now the worst effects of the pandemic are passing.
Underlying operating profits rose 12.4% at constant exchange rates to £24.0m. A modest decline in gross margins reflects lower margins at recently acquired businesses.
The group did'nt declare an interim dividend, having already agreed to be acquired by Apex group in an all cash deal for 920p per share. The acquisition is expected to complete in the first half of 2022.
Sanne shares were broadly flat following the announcement at 909p per share.
Having agreed to be acquired by Apex, Sanne's half year results were really a bit of a non-event for investors.
In some ways that's a shame. The fact a host of rival private equity (PE) companies were interested in snapping up the company is a big vote of confidence in its product. PE groups are potential customers as well as a owners, since Sanne provides administration services to alternative asset managers. The suite of services includes everything from regulatory reporting to transaction management.
It helps that the cost to bring Sanne in to detangle regulatory red tape is just a drop in the ocean for most of these funds, and getting it right is far more important than cutting corners. The group has competitors in some of its individual markets, but there aren't many firms doing what Sanne's doing on a global scale. All that gives Sanne some pricing power.
Alternative investment funds are having a moment in the sun amid a low-interest rate environment as investors seek out potential higher returns. On top of that, global trading complexity is increasing as challenges like Brexit add to the regulatory headache that fund managers must deal with. Sanne has had no shortage of potential customers to draw from and once a fund has been established, it's all-but impossible to switch administrators so revenue is very sticky.
Revenue growth is back on track following disruption caused by the pandemic. Admittedly a fair slug of growth is being driven by acquisitions, but modest organic growth means there's underlying progress too. However, we still don't think that is enough to justify the current valuation of 30 times earnings in our view. That could lead to unpleasant consequences if the deal weren't to go ahead.
Generally, we think Sanne is well positioned with some supportive tailwinds - and we can see why there's been competition among private equity firms to get a slice of the action. Current investors are being well compensated to give up their stakes in the business, but there's likely to be a twinge of regret nonetheless.
Sanne key facts
- Price/Earnings ratio: 30.0
- 10 year average Price/Earnings ratio: 23.5
- Prospective dividend yield (next 12 months): 1.7%
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Half Year Results (at constant exchange rates)
Europe, Middle East & Africa (EMEA) reported sales of £33.8m, up 10.3% year-on-year. That reflects recent acquisitions, with organic growth of 1.7%. However, the group expects underlying organic growth to accelerate in the second half as market start to recover.
The Channel Islands reported 4.3% growth year-on-year, reaching £20.9m.
Asia Pacific & Mauritius reported revenue growth of 13.5%, reaching £18.9m. That reflects very strong growth across the group's Asian markets, offset by slower, but still respectable, growth in Mauritius.
North America reported 27.2% revenue growth, reaching £17.2m. In large part that reflects the acquisition of Strait, without which revenue would have risen 6.9%. Growth reflects good results from the Private Equity sector.
Operating cash flow conversion was in excess of 100%, with free cash flow rising 5% to £14.7m. Net debt fell from £100.5m a year ago to £46.4m. That largely reflects £79.5m of new shares sold in April, which funded the PEA and Strait acquisitions, as well as organic free cash flow. As a result, net debt to cash profits (EBITDA) came in at 0.9x.
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