...and yet TS sold Sage to buy INTU so we are told.? |
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. |
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. |
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. |
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. |
Thanks for your informative summary Maddox |
 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. |
A strong start to the year.
Webcast: |
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. |
 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. |
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? |
 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. |
Hi Cerrito,
Can't argue with any of your points. If you focus on the overall statutory metrics SGE looks expensive. However, that valuation is based on those metrics. Look through to the fast-growing cloud based SaaS business with market winning products and you see a different picture. |
I have a small holding here and I pay it little attention.
Three reasons I will not be following the Questor advice to buy and will hold on to my small holding.
One is the pe ration on forward earnings of 27x; the second is as per the print edition the ROCE was a pedestrian 8pc and the third is the 2.32pc yield-although I do take the point that in the 2 years to 9/22 they spent £600m on share buybacks compared to £360m on dividends. |
Found some time to review my stance on SGE with another look at the Full Year Results to 30 Sept 2022 (FY22). At the statutory level all pretty mundane:
Statutory Figs:
Revenue: +5%
Op Profit: -2%
EPS: -3%
Dividend: +4%
However, look through these unremarkable figures and the underlying picture is very exciting:
>> Annualised Recurring Revenue (ARR) grew 12% driven by new customer acquisition.
>> Renewal by value achieved 101% - indicating that they are retaining the customers they are winning.
>> Sage Business Cloud (now 70% of recurring revenue) grew ARR by +24%, and within this:
>>> The star of the show is Sage Intacct, with US growth of +31%, that has taken North America to be SGE's largest and fastest growing territory(+12%).
>>> As Intacct is now being rolled-out in UK, Australia, and being launched into Europe this bodes well for future growth.
So, the fast growing Cloud Based SaaS business is being masked by the continuing run-down of the legacy business. But the legacy business is shrinking fast and the underlying growth is looking impressive; at some point the mask will slip.
Regards Maddox |
The Analysts’ are continuing to move the recommendations towards a Strong Buy following the FY22 results.
Strong Buy.......10...(7)
Buy...............0...(0)
Neutral...........5...(9)
Sell..............2...(1)
Strong Sell.......2...(2) Brackets are the scores as at Aug 2022.
.................19..(19)
Source: Sharecast.com |
He sold sage to increase his holding in Intuit.
Nice to see further progress here. |
Sage doing very well despite the macro headwinds. so, earnings should really motor when we exit recession. did enjoy some wag on this board suggesting that terry smith will be pleased he sold sage to buy meta. |
Great results clearly showing the underlying growth coming through, particularly in respect of New Customer Acquisition (NCA). The resilience of SGE really shows up in the current uncertain macroeconomic inflationary environment - their ability to push through price increases is a highly attractive feature. |
Another great update & presentation today. Maybe the best since I bought in Feb 2020. By the shareprice action today it appears that the market finally "gets it". About time! The most reassuring comment again was the reiteration that the wave of digitisation of small & medium sized companies continues. Sage is in the sweet spot. The CEO sounds more bullish than I have heard him before. This is a strong hold for me. |
Just noticed my post in January which unfortunately became exactly true.
"
When you look at the strong share price performance in 2021 , it almost exactly mirrors the weak 2018 performance. So are going to see a continuing saw-tooth pattern with a plunge to £6 in 2022? Hopefully not.."
Mind you this has not been hammered as much as most of my AIM portfolio... |
Thought I’d have a look at the Brokers Analysts recommendations and see how things have changed on November last year:
Strong Buy........7...(5)
Buy...............0...(1)
Neutral...........9...(8)
Sell..............1...(3)
Strong Sell.......2...(4) Brackets are the scores as at Nov 2021.
.................19..(21)
Source: Share.com
Their views have improved on a year ago with more Strong Buys and a decline in the Sell and Strong Sells. So, a clear positive shift in Analyst sentiment. |
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