Sanderson Design Group - NEXT agreement shows it is back on track and undervalued
William Morris (1834–1896) was one of the single most influential figures of the nineteenth century. Under his direction Morris & Co. grew into a flourishing and Arts & Crafts icon.
His ability and legend has been carried onwards very safely in the hands of the Buckinghamshire-based Sanderson Design Group (LON:SDG).
The international luxury interior furnishings Group designs, manufactures and markets wallpapers and fabrics, together with a wide range of paints and other ancillary interior products.
The company also derives licensing income from the use of its designs on a wide range of products such as bed and bath collections, rugs, blinds and tableware.
On Monday morning the company announced that NEXT has extended its licensing agreement for Morris & Co. womenswear for up to two years.
This is the latest in a number of new agreements which help to identify that Sanderson Design is back on track and progressing steadily and impressively.
The Group’s Business
Members of the Sanderson Design Group include Sanderson, Morris & Co, Harlequin, Zoffany, Scion, Anthology, Clarke & Clarke, Archive, Anstey and finally Standfast & Barracks.
The Group has in-house manufacturing facilities, which also produce for other wallpaper and fabric brands.
The £76m capitalised company has a strong UK manufacturing base made up by the Anstey wallpaper factory in Loughborough, and Standfast & Barracks, which has a fabric printing factory in Lancaster.
The two key brand names, Morris & Co and Sanderson, were both founded over 160 years ago.
Sanderson Design Group employs approximately 600 people, and its products are sold worldwide. It has showrooms in London, New York, Chicago, Amsterdam and Dubai.
The Renewal of Morris & Co. licensing agreement with NEXT
The initial NEXT range of Morris & Co. womenswear, which was launched in May 2021, has performed strongly since that time.
NEXT will use new designs and colourways during the extension period to launch a further range of Morris & Co. womenswear from Autumn/Winter 2023.
The contract renewal, which starts in April 2023, includes NEXT's in-store and online channels in the UK and Europe.
Lord Simon Wolfson, NEXT's Chief Executive, stated that:
"We are delighted to be renewing our licensing agreement with Morris & Co. for womenswear. We have an excellent working relationship with the company and look forward to developing it further in the years ahead. The combination of their outstanding designs along with NEXT's Sourcing, Online and Retail capabilities continues to deliver exciting products for our customers in the UK and beyond."
Other recent Agreements show real strength
In early June the Group’s Harlequin brand announced that it had signed a three-year collaboration deal with Sophie Robinson, the interior designer and TV broadcaster known as ‘the queen of colour’ owing to her passion for bright and exuberant interiors.
Sophie Robinson, whose popular TV programmes include Channel 5's Dream Home Makeovers, will design and style a capsule collection of wallpapers and fabrics for the Harlequin brand, expected to launch in Spring 2023, using her signature bright colours and bold design.
In late May the Group announced that it had signed a sponsorship agreement with the Emery Walker Trust, the charity that preserves the London house of Emery Walker, a typographer, engraver and friend of William Morris.
Under the agreement, the Morris & Co. brand will launch a collection of fabrics, wallpapers, bedding and homewares based on inspirational items in Emery Walker's House, a museum to the Arts and Crafts movement.
The inspirational items in the house, in London's Hammersmith, include original cushions, rugs, prints and ceramics, including some early Morris & Co. products such as carpet and wall hangings.
It is expected that The Emery Walker House Collection by Morris & Co. will be launched in the Spring of next year.
In early April the bedlinen and homewares company Bedeck, one of the Group's core licensees, announced that it has renewed its licensing agreement with the Group for a further three years as expected.
Bedeck currently has exclusive rights to sell a wide range of bedlinen and towelling for the Morris & Co., Sanderson, Harlequin and Scion brands throughout the UK, Europe and Middle East.
In addition to the renewal of those rights, Bedeck will also hold non-exclusive rights for bedlinen and towelling in the USA and Canada for the four brands.
In February the company announced that its Morris & Co brand will be launching a second collection of fabrics and wallpapers in collaboration with the influential architect and designer Ben Pentreath following the success of his first collection, Queen Square, which re-presented William Morris designs in innovative colourways.
In the same month Morris & Co. brand declared that it had signed an agreement with Harrods, one of the world's leading luxury stores, to launch the Morris & Co. Home Emporium, a new shop-within-a-shop concept which was expected to open in Harrods' flagship Knightsbridge store in April this year.
The Morris & Co. Home Emporium, is defined as a destination for consumers to experience the world of William Morris, selling the full breadth of Morris & Co. products across furniture, bedlinen, cushions, rugs, fabric, wallpaper, paint, tableware, throws, scarfs, and leather goods. It was also expected that a bespoke interior design service for residential or contract projects would be provided.
It was planned that the Morris & Co. Home Emporium will have an online presence on Harrods' website, where Morris & Co. products will be available for purchase.
Towards the end of February this year the company launched an innovative paint range with colours based on historic William Morris colour recipes and documents from the extensive Morris & Co. design archive.
The new range of 40 paints, called Morris & Co. Paint, marks the first paint range to be launched by the brand since 2008, when a change in manufacturing regulations prompted the brand to discontinue its paints. Since that time, customers have frequently requested Morris & Co. paints to co-ordinate with the brand's wallpapers and fabrics.
The Group’s Strategy
The Management’s strategy for the Group’s growth is focused on five key areas:
· Driving the individual brands
· Focusing on core products of wallpaper, fabric and paint
· Partnering with core customers
· Investing in people
· Growing key geographies – UK, Northern Europe and the US.
There are 70.98m shares in issue.
The larger holders include Octopus Investments (13.8%), Close Asset Management (9.36%), Ennismore Fund Management (7.67%), BGF Investments (5.99%), Schroder Investment Management (4.99%), Charles Stanley (4.95%), Interactive Investor (4.81%), Hargreaves Lansdown Asset Management (4.76%), JP Morgan Asset Management (UK) (2,78%) and Allianz Global Investors (1.83%).
AGM Trading Update
At the early July AGM, Dianne Thompson, the chair of Sanderson Design Group, stated on current trading that:
"Overall, trading at the Company in the financial year to date is broadly in line with the same period last year and profits remain on track to meet the Board's full year expectations. The key growth trends outlined in our full year results on 28 April 2022 - including manufacturing, the Morris & Co. brand and the US - have continued strongly in the weeks following the results announcement. Licensing has also continued to perform well.
Recent progress includes a Morris & Co. licensing agreement with the Emery Walker Trust announced in May and a Harlequin collaboration announced last month with Sophie Robinson, the interior designer and TV personality. Recent product launches, including Simply Morris and Ben Pentreath's second Morris & Co. collection, have performed well.
We continue to benefit from a strong net cash position whilst, in common with all businesses, we remain vigilant in respect of the world economic environment.”
I am grateful to David Jeary, analyst at Progressive Equity Research, who has recently updated his research comments on the Group.
“Since a leadership change in 2019, the group has been following a clearly articulated strategic framework with detailed milestones up to FY24 with a view to driving sales and profitability.
Having initially focused on strengthening the business foundations, rightsizing the cost base and increasing business efficiencies, the group is now shifting its attention to a significant number of growth drivers.
These include domestic and international expansion, leveraging its unique archive, increasing brand awareness, extending its licensing agreements and range extension. The group is slated to add homewares alongside its core fabric and wallpaper offering in FY24.”
For the year to the end of January 2023 he estimates that group revenues will have increased from £112.2m to £119.1m, still reflecting slowed ‘lockdown’ sales. Fully adjusted pre-tax profits, Jeary suggests, will rise fractionally from £12.6m to £13.0m for the current year, with earnings of 14.7p (13.6p) and a dividend of 3.8p (3.5p) per share.
For the coming year Progressive Equity Research estimate sales of £128.4, profits of £14.0m, earnings of 15.8p and a dividend of 4.0p per share.
Going ahead the analyst anticipates £138.4m revenues, £15.2m profits, earnings of 16.7p and a 4.3p dividend payment per share.
Next week’s Interim Trading Update, due on 4th August, should be positive, despite the pressures that the group endured in lockdown.
Certainly, the renewed vigour is evident in the number of fresh agreements for the expansion of its ranges and the companies with whom it is tying up show its quality.
The above estimates clearly point out just how undervalued this cash rich group is currently with its shares trading at 107p, that is only a mere 7.9 times historic price-to-earnings and just 7.3 times current year.
A 50% advance in share price would still show them to be cheap.