Sanderson marks a significant licensing milestone

Bosses at Sanderson Design (SDG) didn’t try to gloss over the challenges posed by flagging consumer markets in the UK and elsewhere, but the fall-away in reported full-year profits obscures the strategic process made through the period under review. This was the first time that licensing sales breached the £10mn mark, a pointer to how the luxury interiors group will increasingly leverage its unique brand strength. Group chairman Dianne Thompson said that “visibility of licensing income continues to strengthen”, significant given that related costs are miniscule by comparison to some of the group’s other commercial activities.

The other noteworthy development was the group’s continuing capture of North American volumes. It is now its second-largest market after the UK, but the most important in terms of growth potential. This won’t be achieved overnight given the peculiarities of the US home improvement market, where individual interior designers are highly influential. But the North American footprint is spreading and stands to deepen over time. Brand products sales were up by 9.2 per cent at constant currency, against an 11 per cent decline in the UK.

Apart from Morris & Co, all the brand segments registered narrowing sales figures through FY2024, but there were bright points from an operational perspective, as evidenced by two major licensing renewals with window coverings company Blinds 2go and rug maker Brink & Campman. Gross profit for the full year was £73.7mn, compared with £74.2m, in FY2023, although there was a 160 basis point increase in the underlying margin.

Factoring in the increasing influence of licensing activities, coupled with the group’s solid balance sheet, we retain our contrarian buy call, with the shares trading 48 per cent adrift of the consensus target price at 7.4 times projected earnings. Buy.

Last IC view: Buy, 109p, 11 Oct 2023