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Sanne Group - buyout from Apex slightly delayed

Sanne reported underlying net revenue of £194.2m, up 19% ignoring the effect of exchange rates...

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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.

Sanne shares were unmoved at 912p following the announcement.

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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.

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. We should note the market has become excited by the prospect of the impending buyout from Apex. Investors should keep in mind that if the deal were to fall through, there would likely be negative consequences.

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.

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Full Year Results (at constant exchange rates)

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.

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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
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 1st April 2022