Sage Share Discussion Threads

[wad collector] 19/5/2023 17:38

Almost back to the heady prices of 2002.
I like the hypothesis that rising customer costs encourage the use of more efficient accounting software.

[maddox] 19/5/2023 14:37

Hi Justiceforthemany,

All good points - but Sage has a highly resilient business model that can support the debt which is only 1.3x EBITDA and has respectable Piotroski F-Score of 6 and Altman Z2-Score of 4.5. So, pretty typical and not of much concern.

Accounting software isn't a discretionary purchase for most businesses. Once, you've purchased it - got all your figures into it - you're unlikely to switch. Closure, bankruptcy and liquidation is the greater risk for losing a customer - and little sign of this in the last SGE results: Renewal by value at 101% and £190m of the £222m increase in ARR came from new customers.

Talking of trends - as I post, we're breaking to new highs, and hopefully breaking out from the sideways tunnelling.

Regards Maddox

[justiceforthemany] 19/5/2023 13:38

To add have a look at the balance sheet. Not good.
£2.2Bn a hefty chunk of their assets is 'goodwill'
Debt to equity is 2x
Anyway this market is psychotic and irrational, all about the trend so could go up another 10% or so but the downside is substantial.

[maddox] 19/5/2023 13:10

The Chronic Investor IC 19 May 2023 Buy. 'Sage could be a counter-cyclical buy'

'Rather than just pushing back against the cyclical story, the top-line growth suggests that Sage could actually be a counter-cyclical story. Its momentum in the face of current challenges means the 2024 price/earnings ratio of 23.2 isn’t off-putting. We stick to buy.'

They also highlight the Cloud-native ARR grows at 30% driven in part by the performance of Sage Intacct.

htTps://www.investorschronicle.co.uk/news/2023/05/17/sage-showing-counter-cyclical-qualities/

[maddox] 18/5/2023 20:35

Opps, sorry Amigos posted this on the wrong thread - reposting for continuity.

Very strong 1H23 results today (17 May 23) as the underlying Business Cloud growth breaks through to dictate the top-line results. Highlights:

>> +12% Organic Annualised Recurring Revenue (ARR);

>> Operating margin increasing by 60 basis points to 20.8%;

>> Cash conversion 117%; and

>> 101% Renewal by value.

The star of the show is Sage Intacct which is growing at 30% in the highly competitive US market - and now rolling-out in other geographies. This product is clearly winning new customer acquisition. The widening Op Margin is really good news - and this is expected to continues as SGE focus on growing revenue faster than costs. This will magnify the growth at the bottom-line profit/ eps level translated from the the top-line growth.

No sign of macro economic or competitive factors impacting progress with 101% renewal by value - with some sub-inflation price increases included. The overall goal for SGE is to deliver 'consistent double-digit growth' with a target of 11% for full FY23.

[maddox] 18/5/2023 00:07

Hi justiceforthemany,

Nop not cheap. If your looking for cheap - SGE is never 'cheap'.

However, that doesn't make SGE a bad investment - if growth accelerates and its margins widen, as appears to be occurring, then it might be very good value at 842.8p (up 21.8p 2.66% today from 821p).

My assessment is that SGE's painful transition is largely complete and they'll deliver the promised sustained double digit growth, that with widening margins, will propel the earnings per share forward and will throw off cash. If this occurs 842p will look cheap looking back and deserving of its premium rating.

Looking forward to see how the next few results go - that should confirm the growth trajectory or not.

[justiceforthemany] 17/5/2023 17:52

A P/E of almost 30, is that supposed to be cheap?
No thanks.
Cisco trades at just 10x earnings which means Sage should be nearer 300p
Market is truly insane. Forget fundamentals just follow the sentiment until something breaks or a broker discovers his conscience....
Strong sell

[nhb001] 17/5/2023 09:42

You beat me to it Maddox :-)) Very positive investor presentation just ended. I wish all my holdings were looking as good.

[maddox] 17/5/2023 09:25

Very strong 1H23 results today as the underlying Business Cloud growth breaks through to dictate the top-line results. Highlights:

>> +12% Organic Annualised Recurring Revenue (ARR);

>> Operating margin increasing by 60 basis points to 20.8%;

>> Cash conversion 117%; and

>> 101% Renewal by value.

The star of the show is Sage Intacct which is growing at 30% in the highly competitive US market - and now rolling-out in other geographies. This product is clearly winning new customer acquisition. The widening Op Margin is really good news - and this is expected to continues as SGE focus on growing revenue faster than costs. This will magnify the growth at the bottom-line profit/ eps level translated from the the top-line growth.

No sign of macro economic or competitive factors impacting progress with 101% renewal by value - with some sub-inflation price increases included. The overall goal for SGE is to deliver 'consistent double-digit growth' with a target of 11% for full FY23.

[maddox] 21/4/2023 14:59

I'm a big fan of Terry Smith - he's an exceptionally smart investor. He took advantage of SGE's share buy-back programme to exit his position - which was a bit of an invitation to sell - considering they already had SGE under review. Nevertheless, he appears to have sold at prices below 650p (RNS 17Jan21 share price c.560p below 5% - May 2021) so at a pretty low point. At the time he did say that he felt INTU was the better firm in the sector.

Perhaps he'll have another look at the new-look SGE before he has to overpay? (Don't overpay is his second rule for investment)

[nhb001] 19/4/2023 12:45

...and yet TS sold Sage to buy INTU so we are told.?

[maddox] 19/4/2023 07:48

Much talk about the valuation anomaly between US and UK.

Looking at a side-by-side of SGE 797p versus Intuit Inc (Quick Books) $442.59. In the UK SGE is considered highly valued on a p/e of 25 whereas Intuit is on an eye-watering p/e 64. Similarly, SGE is priced at 4.15x revenue versus 9x for Intuit.

If SGE was valued on INTU's p/e the share price would be 2040p or 1800p on INTU's revenue multiple.

I note that Terry Smith's Fundsmith has sold-out of INTU - he disapproves of their accounting treatment of Share-based remuneration and thinks that they have overpaid for Mailchimp. Intuit paid 12x revenue!

So, UK 'highly valued' firms look extremely cheap from a US perspective.

[maddox] 17/4/2023 13:37

Reading the runes - a few indications that SGE's business transformation is largely complete. The presentation of accounts has been revamped to give 'greater emphasis to underlying revenue and profit measures'. Accompanying this, the cloud-based SaaS firm supporting small and mid-sized company's digitisation needs has had a face-lift with a jazzy new branding, sports sponsorships and a load more awareness building advertising.

Then looking at the rns history there has been some chunky insider share purchases indicating internal confidence in the outlook.

My crystal ball is telling me to expect an up-beat set of results and outlook.

[maddox] 14/4/2023 13:38

Hi Wad,

We'll have SGE 1H23 results on the 17 May - what are your thoughts - do you remain sceptical?

Seeing the Sage brand and advertising far more prominently these days - it'll be interesting to see how the new customer acquisition is performing.

[wad collector] 03/2/2023 20:41

IC tipped today as their IT outsider in the FTSE350 review though it points out that the forward PE of 24 is pricy and that the small and midsized businesses that it has targeted are more vulnerable to the downturn.

[spwh100] 19/1/2023 18:56

Thanks for your informative summary Maddox

[maddox] 19/1/2023 16:47

Yes the 1Q23 Trading Update is worth listening to - the update text is backward looking whereas the verbal commentary and questions are always with a view to the future. The answers to the Analyst questions in particular often adds some significant colour.

Against the current dismal economic background SGE is looking strong for 2023. They are not seeing any macro-economic impact on their business:

>> Expect organic growth to accelerate on 2022;

>> Margins will also grow in 2023 and onwards;

>> The 4-5% price increases in 2022 were well accepted and expect further 4-5% price increases in 2023; and

>> Feeling very comfortable with the market consensus expectations.

High points - Sage Intacct growing at 30%+ in the US. It has been enthusiastically received by the SGE Partner Network in UK and is now being rolled-out in Europe. Hopeful that Europe will overtime reach the growth rate being achieved in the US. This driver together with the fact that 40% of revenue is coming from the North America and the product set is essentially mission critical/non-discretionary spend for their customers underpins their 2023 guidance.

Regards Maddox

Post script: Market reaction to the good news SGE down 22.6p (2.9%) to 753.2p at close.

[bountyhunter] 19/1/2023 07:10

A strong start to the year.

Webcast: Https://edge.media-server.com/mmc/p/vjzkrh3f

[richard3rd] 02/1/2023 17:49

I suspect that there is still a substantial market for non-cloud accounts software, especially the small business market where Sage historically thrived, but that market is unlikely to increase substantially. If the cost of that type of package from Sage is going rise due to customers being forced into subscriptions that’s not going to help customer retention for Sage either.

There are already services out there to import software to some competitors cloud products, which appears to be funded by the competitors. eg. hxxps://movemybooks.co.uk/ there are probably others around, so existing customers are not entirely captive.

[geomac1] 02/1/2023 12:01

Sage's hold on its market share has to be regarded as precarious. The bread and butter product, Sage 50, which is targeted at the SME market has been left behind by modern, cloud-based alternatives such as Xero. The Sage 50 offering remains an earthbound package that is installed on user's computers but which has been recently badge-engineered as Sage 50 Cloud by the simple expedient of offering the option to hold the user's accounts data online. This is reminiscent of the ranges of dismal British Leyland family cars of years ago that featured a premium version with an MG badge.
The article referred to concerns Sage's attempts to boost its revenues by forcing its traditional userbase to convert from perpetual licenses to expensive subscriptions by means of extremely dubious tactics. By using their ability remotely to stop the software from working and preventing the users from accessing their vital data, they have effectively turned it into ransomware. This despite them having admitted that there is no provision in the license agreements allowing them to do so. The situation is well documented in the FT article and the comments beneath it and also in the AccountingWEB forum at hxxps://www.accountingweb.co.uk/any-answers/sage-50-cloud-wont-work-unless-you-update
The fact that this has been done to a large number of loyal customers must give potential clients cause for thought when considering a purchase of such mission-critical software. Many existing clients must also be looking at this with concern but also knowing that moving to a better alternative is both costly and complex due to issues with converting data.
When someone (maybe an ex-employee) produces a fast and accurate routine to convert Sage's proprietary data format for input to a modern, user-friendly system, the decline of Sage Group is assured.

[richard3rd] 31/12/2022 23:58

Up to about 5 years ago the share price was making good progress, more than doubled between 2012 and 2017, but since then its only increased by about 16% despite acquisitions and reported increases in recurring revenue.

There have been moans in other online publications and forums about heavy handed sales methods and I noticed Friday that the same story has now made it to the FT (Google "ft.com sage" - article is titled "Sage accused of 'strong arm' tactics over move to software subscriptions).

Comments from some in response to the FT article Friday are now advocating class action against Sage for switching off old product that customers claim they were still licensed to use.

What do people think of SGE now for short to medium term gain? Too high risk or serious upside potential if their sales methods pay off?

Is the lack of gain in the past 5 years stored potential waiting to break out or are there bigger problems holding it back?

[richard3rd] 21/12/2022 22:39

Re: “Look through to the fast-growing cloud based SaaS business with market winning products”

Not holding this and not intending to for the foreseeable, but be careful about these headline claims of fast growing cloud business and the conversions to SaaS of the traditional customer base. A lot of the small business true cloud product is low end low value, if they can sell enough of it and the customers stick with it then great. The bigger money is in the slightly bigger businesses, who might historically have later upgraded to the much higher value product as they grew. That small business market, the 5-10 user accounts department where Sage dominated the market a few years ago, have recently been encouraged to migrate to subscription product. Many are not happy and previously committed customers may not stay. In my opinion Sage are risking alienating a lot of their core customers with current tactics to accelerate the move to SaaS. SaaS is great for recurring revenue, but you still need customers to stick with the product and pay the fees for an ongoing return. There is also some strong competition when you get to true cloud product from other business who could be more agile than Sage and therefore find it less effort and cheaper to drive innovation. Sage may succeed but I dont think its going to be as easy for them.