trolley in front of freezer aisle

Powering ahead

SandpiperCI Group 21 May 2021 Update
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SandpiperCI Group

Powering ahead

FY21 results

Retail

21 May 2021

Price

87p

Market cap

£87m

Net debt (£m) at 30 January 2021

17.6

Shares in issue

100m

Free float

100%

Code

SANDPI

Primary exchange

TISE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

N/A

N/A

N/A

Rel (local)

N/A

N/A

N/A

52-week high/low

87.0p

73.5p

Business description

SandpiperCI operates a high-quality portfolio of retail brands covering food, clothing and specialist products. It primarily operates franchise stores but also a number of its own food convenience stores. It is the leading Channel Islands retailer and is also present in Gibraltar and the Isle of Man.

Next events

AGM

June 2021

H121 results

October 2021

Analysts

Sara Welford

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

SandpiperCI Group is a research client of Edison Investment Research Limited

SandpiperCI’s FY21 results demonstrate the group’s resilience. In spite of lockdown-related store closures and significant extra pandemic-related costs such as PPE and social distancing measures, gross revenues were up 6% and trading EBITDA was up by 3%. We note FY20 was a 53-week year, therefore if the base is adjusted, the growth was 7% and 6% respectively. Trading has been better than expected at the newly-acquired Le Cocq’s Stores in Alderney, and it is too early to comment on trading in the new Isle of Man territory owing to lockdowns. We leave our estimates for the group broadly unchanged and continue to see upside to the current share price.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

01/20

188.5

4.5

3.56

2.30

24.4

2.6

01/21

200.4

5.1

4.09

3.00

21.2

3.4

01/22e

205.2

5.3

4.25

3.30

20.5

3.8

01/23e

210.4

5.3

4.27

3.50

20.4

4.0

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

FY21: Sales ahead, trading EBITDA in line

FY21 results were broadly in line with our forecasts. Revenue of £200.4m was 2.7% ahead of our £195.2m estimate, while trading EBITDA of £11.31m was 0.5% ahead of our £11.26m forecast. Net debt of £17.6m was better than our expected £18.9m, but this was partly due to the timing of payments. We note that the food retail business was up 19% like-for-like (l-f-l), which was obviously boosted by the pandemic, but the performance was materially stronger than food retailers in mainland Britain during the same period.

Expansion opportunities remain

Sandpiper has been able to leverage its relationships with its franchise partners to open their brands in additional geographies, with recent openings of Card Factory and iQ stores on the Isle of Man. In our view, there are some opportunities for in-fill across existing geographies, and scope for entry into new territories, although we believe the larger long-term opportunity is likely to be an expansion into an adjacent segment such as hospitality.

Valuation: Fair value remains 130p

We value Sandpiper primarily on a DCF basis. Our model assumes medium-term sales growth of 3.5%, a terminal growth rate of 1.5% and broadly flat margins. At a WACC of 8.2%, this results in a fair value of 130p. While there are not many direct peers, Sandpiper trades on a CY21 P/E of 21.0x and EV/EBITDA of 9.4x, a c 20% and c 10% premium respectively to a peer group of food retailers and franchisors. We believe a premium is warranted given Sandpiper’s significant freehold property portfolio (see our initiation note for more detail) and its attractive and well-underpinned dividend yield (3.9% in 2022).

FY21 results

Revenue of £200.4m was 2.7% ahead of our £195.2m estimate, while trading EBITDA of £11.31m was 0.5% ahead of our £11.26m forecast. Net debt of £17.6m was better than our expected £18.9m, but – as noted above – this was partly due to the timing of payments. The food retail business was up 19% l-f-l, which was obviously boosted by the pandemic, but the performance was materially stronger than food retailers in mainland Britain during the same period. The non-food retail business was heavily affected by lockdown restrictions throughout the year, but management took the opportunity to reappraise the brands with which it was partnering. As had been previously announced, Sandpiper has started trading with Matalan instead of George, and has also ceased trading with Moss Bros, Laura Ashley and Cornish Bakery.

As discussed above, we leave our forecasts broadly unchanged following the FY21 results. We illustrate the minor changes to our forecasts below.

Exhibit 1: Old versus new forecasts (FY21–23)

£000s

FY21e

FY21

FY22e

FY23e

Change

Old

New

Change

Old

New

Change

Revenues

195,189

200,380

2.7%

202,151

205,182

1.5%

209,373

210,424

0.5%

Gross profit

15,160

16,232

7.1%

15,701

15,937

1.5%

16,262

16,344

0.5%

Gross margin

7.8%

8.1%

0.3%

7.8%

7.8%

0.0%

7.8%

7.8%

0.0%

Trading EBITDA

11,257

11,310

0.5%

11,658

11,833

1.5%

12,075

12,135

0.5%

Trading EBITDA margin (%)

5.8%

5.6%

(2.1%)

5.8%

5.8%

0.0%

5.8%

5.8%

0.0%

Normalised PBT

5,407

5,118

(5.3%)

5,120

5,306

3.6%

5,156

5,334

3.5%

Reported PBT

3,707

4,729

27.6%

5,120

5,306

3.6%

5,156

5,334

3.5%

Normalised basic EPS (p)

4.33

4.09

(5.3%)

4.10

4.25

3.6%

4.12

4.27

3.5%

Normalised diluted EPS (p)

4.33

4.09

(5.3%)

4.10

4.25

3.6%

4.12

4.27

3.5%

Reported basic EPS (p)

2.67

3.27

22.4%

3.74

3.87

3.6%

3.76

3.89

3.5%

Dividend per share (p)

3.00

3.00

0.0%

3.10

3.30

6.5%

3.20

3.50

9.4%

Net debt/(cash)

18,889

17,648

(6.6%)

18,350

17,018

(7.3%)

17,700

16,737

(5.4%)

Source: Edison Investment Research, company data

Valuation

We value Sandpiper primarily on a DCF basis. Our model assumes medium-term sales growth of 3.5%, a terminal growth rate of 1.5% and broadly flat margins. At a WACC of 8.2%, this results in a fair value of 130p. Our medium-term sales growth of 3.5% reflects consensus RPI forecasts of c 3% and modest growth in store space, as Sandpiper expands across its existing geographies.

We illustrate Sandpiper’s valuation metrics versus its peers in Exhibit 2 below. Comparison is not straightforward as there are not many direct peers. We include the listed franchisors as peers although we recognise their business models are slightly different. Sandpiper trades on a CY21 P/E of 21.0x and EV/EBITDA of 9.4x, a c 20% and c 10% premium respectively to its peer group. We believe a premium is warranted given Sandpiper’s significant freehold property portfolio, its attractive and well-underpinned dividend yield (3.5% in 2021), and management’s recognition that dividend yield is important to its investors. While there is no defined catalyst to suggest a revaluation is imminent, we believe continued earnings growth will underpin the shares. In addition, the significant freehold property valuation (last valued in January 2021) lends support to the valuation.

Exhibit 2: Peer group valuation (calendarised)

Market cap

P/E (x)

EV/EBITDA (x)

Dividend yield (%)

(m)

2021e

2022e

2021e

2022e

2021e

2022e

Sainsbury

£5,882.3

14.8

12.2

5.3

5.1

4.4

4.3

Tesco

£17,855.2

13.0

11.2

7.3

6.9

4.3

4.6

Wm Morrison

£4,403.0

13.6

12.4

6.9

6.6

5.0

4.9

Marks & Spencer

£3,043.7

24.3

11.0

7.0

6.2

1.9

3.5

Hotel Chocolat

£475.7

80.3

40.0

16.3

13.1

0.1

0.2

Card Factory

£292.4

27.5

10.0

10.2

6.4

1.2

7.3

McColl’s

£44.2

9.8

8.0

6.5

6.8

0.0

0.0

Domino's Pizza

£1,749.7

19.8

18.6

16.9

16.2

2.6

2.5

DP Eurasia

£105.4

63.8

18.5

8.8

7.0

0.0

0.0

Peer group average

17.5

11.9

8.6

7.7

2.8

3.9

Sandpiper

£87.0

21.0

20.1

9.4

9.0

3.5

3.9

Premium/(discount) to peer group

19.8%

68.5%

9.9%

16.4%

24.8%

(1.0%)

Source: Refinitiv, Edison Investment Research, company data. Note: Priced at 18 May 2021. Average excludes Hotel Chocolat and DP Eurasia.

We exclude Hotel Chocolat and DP Eurasia from our peer group average as their metrics skew the average of the rest of the group. Sandpiper trades at a premium to its peers on both P/E and EV/EBITDA. This is justified by its strong property portfolio and an attractive dividend yield, in our view. The current equity market valuation is £87m, or an EV of £105m. With a property portfolio valued at £64m, this implies the franchise operations are valued at just £41m. Of course, for full comparison, an operating company stripped of the property would have to bear rental costs instead of depreciation. The dividend is well covered by free cash flow and Channel Island investors should benefit from tax relief on any dividends paid after December 2020.

Exhibit 3: Financial summary

£000s

2018

2019

2020

2021

2022e

2023e

2024e

Year end 31 January

FRS102

FRS102

FRS102

FRS102

FRS102

FRS102

FRS102

INCOME STATEMENT

Revenue

 

 

174,884.0

189,056.0

188,475.0

200,380.0

205,181.7

210,423.8

215,658.5

Cost of Sales

(160,200.0)

(174,956.0)

(173,836.0)

(184,148.0)

(189,245.1)

(194,080.0)

(198,908.2)

Gross Profit

14,684.0

14,100.0

14,639.0

16,232.0

15,936.6

16,343.8

16,750.4

EBITDA

 

 

8,444.0

10,013.0

10,973.0

11,310.0

11,833.0

12,135.3

12,437.2

Normalised operating profit

 

 

3,838.0

5,003.0

5,834.0

5,972.0

6,012.4

6,014.9

6,026.7

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

(1,395.0)

4,309.0

(2,390.0)

(389.0)

0.0

0.0

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Reported operating profit

2,443.0

9,312.0

3,444.0

5,583.0

6,012.4

6,014.9

6,026.7

Net Interest

(1,306.0)

(1,207.0)

(1,058.0)

(854.0)

(705.9)

(680.7)

(669.5)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

(257.0)

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

2,532.0

3,796.0

4,519.0

5,118.0

5,306.5

5,334.2

5,357.2

Profit Before Tax (reported)

 

 

1,137.0

8,105.0

2,129.0

4,729.0

5,306.5

5,334.2

5,357.2

Reported tax

(1,248.0)

(1,348.0)

(1,281.0)

(1,462.0)

(1,432.7)

(1,440.2)

(1,446.4)

Profit After Tax (norm)

(247.2)

3,036.8

3,563.8

4,094.4

4,245.2

4,267.3

4,285.7

Profit After Tax (reported)

(111.0)

6,757.0

848.0

3,267.0

3,873.7

3,893.9

3,910.7

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

(247.2)

3,036.8

3,563.8

4,094.4

4,245.2

4,267.3

4,286.7

Net income (reported)

(111.0)

6,757.0

848.0

3,267.0

3,873.7

3,893.9

3,910.7

Basic average number of shares outstanding (m)

100

100

100

100

100

100

100

EPS - basic normalised (p)

 

 

(0.25)

3.04

3.56

4.09

4.25

4.27

4.29

EPS - diluted normalised (p)

 

 

(0.25)

3.04

3.56

4.09

4.25

4.27

4.29

EPS - basic reported (p)

 

 

(0.11)

6.76

0.85

3.27

3.87

3.89

3.91

Dividend (p)

0.50

1.00

2.30

3.00

3.30

3.50

3.60

Revenue growth (%)

12.4

8.1

-0.3

6.3

2.4

2.6

2.5

Gross Margin (%)

8.4

7.5

7.8

8.1

7.8

7.8

7.8

EBITDA Margin (%)

4.8

5.3

5.8

5.6

5.8

5.8

5.8

Normalised Operating Margin

2.2

2.6

3.1

3.0

2.9

2.9

2.8

BALANCE SHEET

Fixed Assets

 

 

76,015.0

92,809.0

95,748.0

98,468.0

97,776.9

97,969.2

98,028.5

Intangible Assets

27,268.0

26,169.0

24,454.0

24,605.0

23,059.0

21,513.0

19,967.0

Tangible Assets

48,745.0

66,471.0

71,292.0

73,861.0

74,715.9

76,454.2

78,059.5

Investments & other

2.0

169.0

2.0

2.0

2.0

2.0

2.0

Current Assets

 

 

26,070.0

23,295.0

26,014.0

22,114.5

22,522.6

23,250.6

24,017.7

Stocks

10,203.0

10,447.0

10,505.0

11,990.0

11,354.7

11,644.8

11,934.5

Debtors

4,089.0

5,229.0

5,714.0

5,742.0

6,155.5

6,312.7

6,469.8

Cash & cash equivalents

11,778.0

7,619.0

9,795.0

4,382.5

5,012.4

5,293.1

5,613.5

Other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(49,207.0)

(31,127.0)

(33,566.0)

(30,916.3)

(30,059.8)

(30,586.1)

(31,101.8)

Creditors

(27,856.0)

(29,215.0)

(26,716.0)

(29,054.0)

(28,197.5)

(28,723.8)

(29,239.5)

Tax and social security

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Short term borrowings

(21,351.0)

(1,912.0)

(6,850.0)

(1,862.3)

(1,862.3)

(1,862.3)

(1,862.3)

Other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(2,722.0)

(25,047.0)

(24,556.0)

(23,957.0)

(23,957.0)

(23,957.0)

(23,957.0)

Long term borrowings

(101.0)

(23,367.0)

(22,038.0)

(20,168.0)

(20,168.0)

(20,168.0)

(20,168.0)

Other long term liabilities

(2,621.0)

(1,680.0)

(2,518.0)

(3,789.0)

(3,789.0)

(3,789.0)

(3,789.0)

Net Assets

 

 

50,156.0

59,930.0

63,640.0

65,709.2

66,282.7

66,676.6

66,987.4

Minority interests

0.0

0.0

0.0

(468.5)

(468.5)

(468.5)

(468.5)

Shareholders' equity (excl minorities)

 

 

50,156.0

59,930.0

63,640.0

65,240.7

65,814.2

66,208.1

66,518.9

CASH FLOW

Op Cash Flow before WC and tax

8,444.0

10,013.0

10,973.0

11,310.0

11,833.0

12,135.3

12,437.2

Working capital

2,195.0

(1,306.0)

(3,329.0)

1,052.0

(634.6)

79.0

68.9

Exceptional & other

(2,475.0)

(3,849.0)

(3,052.0)

(1,498.0)

(705.9)

(680.7)

(669.5)

Tax

(6.0)

(30.0)

(1,700.0)

(1,471.0)

(1,432.7)

(1,440.2)

(1,446.4)

Net operating cash flow

 

 

8,158.0

4,828.0

2,892.0

9,393.0

9,059.7

10,093.3

10,390.2

Capex

(3,877.0)

(3,458.0)

(8,548.0)

(2,325.3)

(5,129.5)

(6,312.7)

(6,469.8)

Acquisitions/disposals

(4,212.0)

(10,272.0)

0.0

(2,610.0)

0.0

0.0

0.0

Net interest

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Equity financing

0.0

0.0

2,419.0

0.0

0.0

0.0

0.0

Dividends

0.0

0.0

(2,254.0)

(2,996.4)

(3,300.0)

(3,500.0)

(3,600.0)

Other

4,750.0

4,751.0

7,681.0

(6,886.0)

0.0

0.0

0.0

Net Cash Flow

4,819.0

(4,151.0)

2,190.0

(5,424.7)

630.1

280.6

320.4

Opening net debt/(cash)

 

 

(7,229.0)

9,674.0

17,660.0

19,093.0

17,648.0

17,017.9

16,737.2

FX

(270.0)

(8.0)

(14.0)

12.0

0.0

0.0

0.0

Other non-cash movements

(21,452.0)

(3,827.0)

(3,609.0)

6,857.7

0.0

0.0

0.0

Closing net debt/(cash)

 

 

9,674.0

17,660.0

19,093.0

17,648.0

17,017.9

16,737.2

16,416.8

Source: Company data, Edison Investment Research

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Germany

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United Kingdom

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United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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New Zealand

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United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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