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EDISON INVESTMENT RESEARCH LIMITED (LON:KEFI) Edison Investment Research Limited: SandpiperCI Group (SANDPI): Initiation - An island of opportunity

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18/01/2021 09:00

Edison Investment Research Limited
Edison Investment Research Limited: SandpiperCI Group (SANDPI): Initiation - An island of opportunity

18-Jan-2021 / 08:00 GMT/BST


 

London, UK, 18 January 2021

SandpiperCI Group (SANDPI): Initiation - An island of opportunity

 

SandpiperCI is the leading Channel Island retailer, primarily operating franchise stores and a number of its own food convenience stores. It operates a high-quality portfolio of brands covering food, clothing and specialist products. Sandpiper has been able to leverage its long relationships with major retailers to open their brands in Gibraltar and, more recently, in the Isle of Man. It owns a high-quality freehold property portfolio, which provides a barrier to entry for the competition and was independently valued at £60m 12m ago. We believe the current share price offers a good entry point, with significant upside to our fair value of 130p.

We value Sandpiper primarily on a DCF basis. Our model assumes medium-term sales growth of 3.5%, 1.5% terminal growth rate and broadly flat margins. At a WACC of 8.1%, 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 space growth, as Sandpiper expands across its existing geographies. While there are not many direct peers, Sandpiper trades on a CY21 P/E of 19.4x and EV/EBITDA of 8.5x, a 48% premium and 3% discount respectively to a peer group of food retailers and franchisors. We believe a premium is warranted given Sandpiper's significant freehold property, and its attractive and well-underpinned dividend yield (3.9% in 2021, which rises to 4.75% for Channel Island investors due to tax credits).

 

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Sara Welford        +44 (0)20 3077 5700

Russell Pointon    +44 (0)20 3077 5700

consumer@edisongroup.com

 

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