Shares I looked at this week (31 May 2025)

I looked at Sanderson Design, Eurocell, and Dianomi this week - and frustrated that all three could be great companies, but just not investible for me right now.

Sanderson Design #SDG $SDG.L

This is an IP company that owns the rights to many famous fabric designs and patterns. They operate three divisions. The first is Brand, which manufactures fabrics and wallpapers using the IP designs and patterns. The second is Manufacturing, which does contract manufacturing for third parties, presumably also wallpapers and fabrics. The third is Licensing, where the designs are licensed out to other brands (Next, H&M, etc) to use in other products (eg furniture, homewares, etc).

Sanderson has been on my watchlist for a while, for two reasons. One is the very strong NTAV backing, my personal calcs show a 93p per share NTAV, and 60p if I take a conservative view on the high inventory. The shares are currently trading at 42p, so are way deep in NTAV bargain territory.

The second reason is that they own very valuable IP, in the form of their fabric designs and patterns. This value is on top of the NTAV calculations above. In the last few years, they have been trying to grow their Licensing part of the business to further unlock this value. Their list of partners they have licensing agreements with are impressive: NEXT, Williams Sonoma, H&M, John Lewis, Zara to name a few.

Wallpaper “inspired” by William Morris. As Imagined by AI. Source: Microsoft Copilot

In their latest FY Jan25 results which I looked at, Licensing is only £11m out of £101m of revenues, but at 100% gross margin, it probably contributes the majority of the (heavily) adjusted underlying PBT of £4.4m. Licensing is the crown jewel here, with the other two bits (Brand and Manufacturing) unprofitable. On top of that, B + M also saw steep revenue declines last year, of -9.5% and -10.0%. Ouch.

The FY25 results aren’t pretty reading. Not many positives to take out of it. Even in crown jewel division of Licensing, there are hardly any positives. Only +1% growth YoY.

And when you dig into the breakdown of the Licensing commentary, it is even more depressing. Despite focusing on it for several years, they don’t seem able to generate consistent, growing licensing revenues year on year. Sanderson break out Accelerated Income (which is the minimum guaranteed income from a licensing contract) and Variable Income (which is the ongoing licensing fee, based on volume/value of licensed products sold). If their licensing partners are able to successfully take Sanderson designs and use them to create hot-selling products, then one would expect Variable Income to grow over the years.

Despite being in the licensing game for years now, and growing their list of licensing partners, this is the Variable Income revenue reported through the years:

• FY25 = £3.1m (H1 = £1.4, H2 = £1.7m)

• FY24 = £4.4m

• FY23 = £4.1m

• FY22 = £3.8m

• FY21 = £2.8m

Hardly any growth to talk about here! So are licensees really able to turn Sanderson designs into hot-selling products? They must to some extent, given the license renewals we hear about. But why is there no growing Variable Income year after year to show for all the hard work in Licensing?

And then there’s the car crash of the Brand division and Manufacturing division. These two divisions are where most of costs of the Group are incurred.

Sanderson reported, on a Group level, that Distribution & Selling costs increased +1.5% YoY, and Admin Expenses increased +3.0% YoY. This is very bad commercial management… in a year where the two divisions declined -9.5% and -10% in revenues. They have clearly let costs get out of control in relation to revenues. And the revenue declines didn’t come out of the blue - they started a year earlier, in FY23! So plenty of time for management to proactively right-size the cost base, which they failed to, in FY24.

Management also decided to do some derisory share purchases. To fool gullible investors? There was a concerted buy recently by the Chairwoman, CEO, Global Commercial Director, and a Non-Exec of amounts… £10k, £15k, £5k, £5k. Clearly token amounts. The CEO herself has a base salary ok £383k in FY24; clearly paid enough to dip more into her pocket. The CFO did not even participate in this derisory share purchase - that speaks volumes.

On top of that, one of the major shareholders, Octopus, has been trying to sell down their 13%+ stake since May23. They currently still have 10%, having sold down from 11% in Mar25. This selling overhang in the market will keep the share price on a downward trajectory.

Then there are the Trump Tariffs. A major plank of the Sanderson turnaround plan is to grow their wallpaper and fabric sales in the USA. Manufactured in the UK. They claim no tariff impact, but how can that be? There is now a 10% tariff on imports. Plus the tariffs have caused 30 year Treasury yields to increase, which directly influences (30 year) mortgage rates in the USA, which will impact house transactions, which will impact renovations, and therefore fabric and wallpaper demand.

So not many positives here on Sanderson. In fact, I’m usually one to find at least a few positives in every share, and here I am struggling to find any. The only positive thing is that discount to NTAV. It would probably be too tempting to pass up the deep value at c35p mark, so I’d probably pick up some at that level, but not at the 43p level it currently is at.

Eurocell #ECEL $ECEL.L

This share s a favourite of retail investors, and had a nice increase last year driven by optimism around the new Labour government and the expected surge in housebuilding to come. That optimism has now faded, and recently the company issued a Trading Update for the first four months (Jan25 to Apr25), warning on profits. This resulted in the broker consensus forecast for FY Dec25 to be slashed -14%. Ouch. It is currently at 17.4p EPS, which is not much more than the 17.1p achieved in FY Dec24. Despite having the benefit of an acquisition, Alunet, that contributes c8% of additional revenues.

Looking at other Home Improvement shares like Wickes and Topps Tiles, it is clear that Eurocell’s share price has lagged way behind since the start of the year. How are other Home Improvement players seeing better prospects and improved trading, whilst Eurocell does not?

Share prices of Eurocell, Wickes, and Topps Tiles from the start of the year. Eurocell is the bottom line, Topps the middle, and Wickes the top. Source: Stockopedia

Then there is the case of the weather. Companies love to play the weather card when it is a negative to their performance. In Eurocell’s case, its clients (professional installers) are heavily dependent on the weather. uPVC windows, conservatories, composite decking, fencing. All work that is outdoors, where good weather means faster work, more productive days, more installations done. And should therefore mean more sales to each installer.

The weather in the UK has been the best for outdoor home improvement in decades. The Met Office declared March the sunniest March ever since records began. And then another monthly record was broken, with April the sunniest since records began too. And this compared to last year, which was one of the least sunniest Springs we have ever had.

All of this, should have meant a boost in LfL sales, YoY. Yet not a single word was mentioned in the Trading Update from Eurocell, which can only mean that March and April were not terribly good months. So does this suggest that they have lost market share? Or did the RMI market really struggle to grow, despite the better weather?

The Topps and Wickes updates recently seem to suggest the market is improving.

The Barclays Spending data shows that Mar was +0.9% YoY, April was +4% YoY. Compared to -2.4% and -2.7% YoY in Feb25 and Jan25.

So the data seems to suggest that Eurocell is struggling, singularly, rather than the market struggling as a whole.

I keep it on the watchlist, as I do like the fact that it has got low debt, and is highly cash generative. Eurcell generates the equivalent of 20-25% of its market cap in Operational Cashflow each year, with negligible debt costs and modest capex costs. However, I think the current 160p share price is already pricing in a recovery, when it seems like maybe Eurocell is struggling vs the market as a whole.

Dianomi #DNM $DNM.L

The FY Dec24 results were very disappointing, despite management last year flagging up that H2 would be better, especially with the boost of the USA elections happening.

What was the actual result?

Revenue declined to £13.8m in H2 from £14.2m from H1.

Adjusted EBITDA declined from a +£0.1m profit in H1 to -£0.4m loss in H2.

On the operations side, Publisher numbers were flat YoY to 341. Advertiser numbers dropped a steep -18% YoY, which was not really explained by the company at all. As an investor, I expect such a steep fall in an important metric to be explained.

As a Primer, Dianomi operates an Ad Network, with the two sides of the marketplace being Publishers (eg Websites where the ads are shown) and Advertisers (companies that pay to have their ads shown). To create a healthy system attractive to both sides, you need many Publishers and many Advertisers. A big Ad Network is a strong moat.

Most of their advertisers are Financial Services companies in the USA; I struggle to think that they had a bad year last year as a whole? Did the advertisers see Dianomi as a low quality network and took their advertising dollars elsewhere? Even among their Top 100 advertisers (who were presumably happy to keep spending with Dianomi), spend dropped -3.9% YoY. Not a sign of a high quality growing ad network, as spend would increase otherwise.

The bad news keeps coming; this year we will see lower gross margin, as the contract with their largest Publisher means less rev-share. They are also going to increase spending on Sales headcount, to try to recruit more advertisers from non-Financial Services industries. Again, is this a sign that FS companies now see Dianomi as not very good? This is an existential question as Dianomi has been trying to build **The** Financial Ad Network in the USA.

There were some positives. Expansion of a contract with their largest publisher, CNN, to include CNN News in addition to the current CBB Business. As well as a new publisher signed, Associated Press, which would be top 10 Publisher volume. Not bad.

The other positive investment thesis for Dianomi are:

• NTAV is at 28p, of which the bulk is the £8.8m cash (no debt) which is now more than the share price.

• A private investor has built a 17% stake in the last two years, from Mar23 to May25. Scobie Dickinson Ward. I’ve tried to find out more information on him, but haven’t pierced together much. He was also invested in Plant Health Care, and 4Global, two other small cap companies too. He may be the same person as the Scobie Ward in Hong Kong that runs Ward Ferry Management, an investment fund focused on the APAC region? Nothing I could find suggests that he has an intrinsic expertise in the AdTech industry. However, he is deep underwater, buying in around 70-80p in Mar23, and then 45-55p in Sep23. The share price is now 27.5p.

• This could be a take-over target for a USA based AdTech company. Most of their revenues are US-based. A bigger Ad Network could strip out all the fixed costs, and retain most of the £7.3m/year gross profit generated, get the £8.8m cash pile, AND the valuable network of Publishers and Advertisers that Dianomi has built up in the Financial Services space. Looking at it from this way, it could be worth a £20-40m bid, which would be 2-5x the current share price.

For me, given that this year is going to be loss-making, and there looks like a big seller (Canaccord Genuity) still looking to sell down another 11%, the shares will likely drift further down. I think it becomes an absolute bargain below the 20p mark, and as we’ve seen with small cap illiquid shares, they can get to really ridiculous territory.