- Fabrics and wallpapers expert reports first-half figures that meet expectations and flags a better start to the second half
- USA and licensing revenue offset ongoing weakness in UK and Europe
- Net cash balance sheet a welcome source of support
- Shares down at levels last seen during Covid-19 and lockdowns in 2020
“When a share price is languishing at levels no higher than those of five years ago, during Covid-19 and lockdowns, or even 2007, just as the world lurched into the Great Financial Crisis, it may not take much by way of good news to get it going, and Sanderson Design’s first-half results may just be a prime example of that,” says AJ Bell investment director Russ Mould.
“The fabrics and wallpaper specialist began this year by issuing a profit warning in January, but April’s full-year results were then no worse than expected and the first-half figures for the new financial year have also offered no nasty surprises.
“Once known as Walker Greenbank, Sanderson Design has a rich heritage and strong brands, which include Zoffany, Harlequin, Sanderson and Morris & Co, but the last three years have been ones to forget for the Chiswick-headquartered company. Weak consumer confidence has dampened sales across its brand, manufacturing and licensing activities, while the company has invested heavily in digital marketing and production.
“Last year’s £16.3 million write-down of intangible assets relating to 2016’s purchase of Clarke & Clarke took Sanderson into the red, on a statutory basis and the dividend was cut. Throw in April’s tariff scares, thanks to President Trump’s ‘Liberation Day’ trade agenda, and during spring the share price hit lows not seen since Covid-19 was doing its worst in early 2020 and before that in 2010.
“Company chair Dianne Thompson is leaving the first half dividend for the financial year to January 2026 unchanged at 0.5p, as a cost-cutting programme and sales mix help Sanderson to overcome a 4%, or £2.2 million, year-on-year drop in first-half sales and keep underlying pre-tax profits flat at £2.2 million. Strength in the high-margin licensing business is a key factor behind the positive sales mix.
“That could leave analysts’ consensus forecasts for a further drop in underlying pre-tax profit in the current year looking a little conservative, although licensing revenue can be lumpy and trade in the UK and Europe still seems difficult, thanks to the uncertain economic outlook.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
“In the meantime, Sanderson has £7.8 million in cash and no debt on its balance sheet. Adjust those figures for a £2.2 million pension surplus and £10.8 million in lease liabilities and the company’s finances are solid.
“This leaves management and staff with time on their side to reduce costs and also sweat down the inventory accumulated last year. The latter releases further cash, and capital investment is way down from the levels of a year ago for good measure, to help further buttress Sanderson’s finances.
“It also means that shareholders can be patient as they wait for a potential improvement in trading.
“The strong finances provide some downside support to both the operational business and the valuation of the stock.
“Sanderson’s stock market capitalisation is £38 million and that represents less than four times the £9 million in after-tax profits recorded at prior peaks in 2018 and 2023, a multiple which could intrigue any contrarian investor who believes the company is enduring a cyclical dip rather than any more deterioration in its business model. Sanderson’s rich heritage and strong brands could easily serve it well as and when the economy turns for the better.
“Value-hunters may also note how that £38 million market capitalisation compares to £69 million in shareholders’ funds at the half-year stage. That is a very lofty discount to net asset, or book, value and the gap is still large even if £10.7 million in intangible assets are excluded from the calculation.
“Many of the best returns from a stock come when the picture goes from truly awful to merely less bad, because expectations are low and valuations are often accordingly bombed out, and Sanderson’s valuation is indeed starting to look very depressed, based on past-peak earnings and asset value.”
