Sandal is a specialist developer & supplier of electronic products/solutions for smart home, IoT, energy saving and other applications. It joined NEX in March ’15 and operates 3 divisions: MiHome offers Smart Home devices and associated software solutions to remotely control heating, lighting, power and other internet enabled appliances; PowerConnections sells a range of patented electricity/converter plugs, line-cords, extension leads, cordsets and adaptors; Energenie is a leading supplier of energy saving products, eg LEDs, sockets, etc.
Smart homes are transforming the way people live. Not only allowing almost any internet-enabled appliance, security alarm/camera, lock, light, thermostat et al to communicate automatically with each other and everyone. But also creating a huge market opportunity, with Strategy Analytics estimating that consumers will spend a staggering $96bn (+14%) globally in 2018, climbing to $155bn by 2023 (10% CAGR).
What’s more, this growth is likely to be much higher in Western economies. In fact, Voicebot believe that by 2022, 55% of all Americans will own at least one voice-activated smart-speaker (33% CAGR) and 48% in the UK (37%).
The tricky bit for investors, of course, is trying to figure out which horses to back. Internationally the major players include a long list of publicly quoted & privately-owned organisations. Nonetheless, one stock that stands-out, especially for risk-tolerant GARP investors, is micro-cap Sandal plc. It is listed on NEX and we like its growth trajectory, breadth of product range, experienced management team and favourable risk/reward profile.
At 26p, the stock is rated on a modest 1.0x CY EV/revenues vs MiHome peers at 2.5-3.0x and the S&P500 1.9x. Over the past two years MiHome’s success has been masked by Sandal’s two other divisions. However, today smart home devices account for ~28% of turnover, meaning that the business has reached a tipping point. In fact, we’re forecasting 30% and 42% top line expansion for this year and next – generating revenues of £4.8m and £6.8m respectively, alongside positive operating profits.
Taking all these factors into consideration, we conclude that on a sum of the parts (SOTP) basis, Sandal is worth 65p/share: split 12p PowerConnections, 55p MiHome, 2p Energenie and -4p net debt.