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Sanne - Acquisition given green light

Half-year revenue grew 25.8%, with growth of 11.2%, excluding the impact of acquisitions and exchange rates...

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Half-year revenue grew 25.8%, with growth of 11.2%, excluding the impact of acquisitions and exchange rates. New business rose 24.8% to £19.6m.

Profit margins were in line with management expectations and operating cash conversion came in ahead of the 90% guidance.

Regulatory clearance has been received, meaning plans to be acquired by Apex can continue. Barring any objections from the courts, this will become effective on 4 August 2022.

Sanne shares were broadly flat following the announcement.

View the latest Sanne share price and how to deal

Our view

Having agreed to be acquired by Apex, Sanne's financial results aren't going to move the dial.

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 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.

Give the current uncertainty, alternative investment funds will likely see traders start to retreat. But that hasn't stopped Sanne from bringing in hordes of new business. Its services are still of value given global trading complexity is on the rise. Although Brexit might seem like old news, the regulatory headache that fund managers must deal with continues to linger. 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 double-digit organic growth means there's underlying progress too.

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 as the group is absorbed under the Apex umbrella.

We have stopped covering Sanne as part of our Share Research service. Data and views below were correct at the time of original publication. This shouldn't be used to form an up-to-date picture of Sanne's investment case.

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Sanne key facts

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.

Full Year Results (1 April 2022)

Sanne reported underlying net revenue of £194.2m, up 19% ignoring the effect of exchange rates. That reflects growth across all regions, and organic growth of 8.6%.

Underlying operating profits rose 21% to £54.2m.

The group didn't declare a final 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 either late in the second quarter or early in the third quarter of 2022.

Europe, Middle East & Africa (EMEA) reported sales of £72.6m, up 17.4%. That reflects recent acquisitions, and a return to growth in South Africa after difficulties during the pandemic.

The Channel Islands reported 9.8% growth year-on-year, reaching £43.9m.

Asia Pacific & Mauritius reported revenue growth of 17.3%, reaching £39.7m, including strong organic growth of 13.8%. Mauritius is seeing some challenges relating to staff turnover. Gross profit margins fell to 67.4% from 69.9%.

North America was buoyed by the Avalon acquisition, which helped net revenue rise 37% to £37.9m. The group's legacy business has seen a "healthy increase" in new business momentum in the second half. Higher staff costs meant gross margins dipped from 52.4% to 49.9%.

Underlying free cash flow was £39.6m, compared to £33.6m last year. Net debt came down to £64.0m from £89.8m.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Laura Hoy
Laura Hoy
ESG Analyst

Laura is part of HL's ESG analysis team, working to offer research and analysis to help with sustainable decision making. She also works with other parts of the business to help integrate ESG.

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Article history
Published: 25th July 2022