Sage Share Discussion Threads

[maddox] 11/1/2006 17:26

Lyntwyn,

Brokers have been consistently 'mixed'. UBS's clients will have missed the recent rise - a case of sour grapes perhaps. Also, this rise must put further immediate progress in doubt, so not surprising if more Brokers like Citibank, move to neutral from buy. Nevertheless, 'wise investors' to quote Tempus will see the logic and value beyond the solely combined financials.

Sensible acquisitions like this should underpin the valuation at current levels - we can now see where the growth will be coming from to justify a high p/e.

Regards, Maddox

[lyntwyn] 11/1/2006 09:39

Mixed reviews from brokers.

Newcastle-based Sage, which supplies small and medium-sized businesses (SMEs), said the deal will help it meet growing demand from its North American customers for payment processing services, such as credit card and cheque processing. In response, WestLB reiterated its 'outperform' stance and said the "significant acquisition shows ambition". The broker added that Verus is very profitable and consequently the price looks fairly full. Historically, Sage has bought companies with operating margins of 5-15% and raised them to around 25% by selling its own service contracts to the top end of the acquired customer base, WestLb said. And whether the strategy behind the Verus deal is margin enhancement or cross-selling (more likely) remains to be seen. Meanwhile, UBS retained its 'neutral' stance and said investor's reaction is expected to be muted initially given the price paid and the move beyond Sage's core competency. It added the poor cross-selling experience with Interact is also likely to weigh on investors' minds.
Downgraded to 'hold' from 'buy' at Citigroup Smith Barney with a reduced price target of 270 pence, dealers said. In a note to clients, the broker said the move follows the group's acquisition yesterday of Verus in the US. Citigroup argued the deal has a strong rationale as it brings a credit card and cheque processing offering to Sage's existing footprint in the US and is part of Sage's strategy of becoming a complete business solutions provider. Furthermore, Verus brings a strong cross-selling opportunity, primarily for Sage's Peachtree customer base, which includes around 300,000 retailers. But it added the acquisition is relatively large, 184m, given Sage's recent history, and the price is relatively full. As a result the acquisition is likely to be only moderately earnings enhancing -- around 3% in 2007. Citigroup argued that Sage still has around 300m of capacity for further acquisitions to drive further EPS upside however it estimates that this is only likely to enhance EPS by a further 9% which is similar to its target price upside.

[botwoman] 10/1/2006 12:48

here it is...

Sage's growth plans make it a valuable prize for predators

WISE investors have long recognised the qualities of Sage, the Newcastle-based software group that supplies a third of UK businesses with accountancy software. Britain's largest listed software firm has delivered steady growth over the past three years by making itself synonymous with back- office kit for companies that have fewer than 100 staff.
Sage's sales of accounting and payroll software are often worth less than £200, but as there are more than 4.7 million of them, they add up. The group also makes half of its revenues from support contracts - providing help-desk services to companies that are too small for in-house teams.



Around 5 to 6 per cent of Sage's annual growth is generated organically by encouraging customers to buy more expensive products and more services. Another tactic is to buy lots of small rivals, offering similar products, and then drive the margins up, a skill at which Sage so far has been incredibly successful.

Despite the robust performance, analysts have yearned for something that would trigger a re-rating. Yesterday's acquisition, the biggest for five years, could be that trigger. Sage wants to connect the back office with the front office and the purchase of Verus Financial Managment, the United States-based merchant services provider, will take it a long way towards that goal. Verus, based in Nashville, processes customer transactions through credit cards, debit cards and cheques. The idea is to integrate Verus's services with Sage's accounting solutions so that when a customer's purchase is processed, a book-keeping entry is automatically generated for the firm's accounts.

The £184 million cash deal could prove to be a turning point for the group. Microsoft, for one, has been eyeing the lucrative territory occupied by Sage, so this entry into the front-office world and the whole area of business process outsourcing will keep Sage one step ahead of the behemoth.

Expect further acquisitions, some equally chunky, this year, as the company has indicated that it will gear up and increase its net debt from about £100 million to £600 million in 2006. Growth should also come from geographical expansion, with Sage investigating China and Italy.

With 1.3 million business customers worldwide paying for renewable service contracts, Sage would also be a valuable prize for a predator. Buy.

[lyntwyn] 10/1/2006 09:28

Tempus in todays Times puts SGE as a buy.

[maddox] 09/1/2006 21:40

rmillaree,

Spot on. I know this market too and Sage's takeover of US payment processor, Verus Financial Management, is IMHO an excellent strategic move. The takeover valuation is p/e 15.3 which is reasonable for a fast growing (24% y-on-2004) business with good margins. It should be immediately value-adding and margin enhancing.

Moreover, as you say, payment processing has excellent synergy with Sage's existing business - more so in fact than say CRM. Sage's accounting products have to be integrated seamlessly with payment services so a move in this direction makes perfect strategic sense.

Regards, Maddox

[rmillaree] 09/1/2006 18:47

To me this looks like an excellent acquisition.Our company runs payroll for various small businesses. At present the problem is always that after running the payroll the net figures need to be paid, which normally involves exporting the values to one of the banks autopay services. The banks charge a fee for every single net pay processed. If sage can provide an automated system for this within their payroll software they should be able to charge a fee for every transaction made.
The same should be possible for automated payments to suppliers within the main accounting software.

The cross selling of the different products is particularly attractive when this facility becomes available.
Processing revenues will be generated from existing sage customers, customers who use the payment processing systems are more likely to switch their accountancy software to sage.
Payroll agents and companies are more likely to switch from a competitors package if sage can offer a "complete" service when their current supplier does not.

[botwoman] 09/1/2006 09:35

more AFX

In an interview with AFX Sage finance director Paul Harrison, said the
acquisition was likely to be "modestly accretive" to earnings in the first year
of the deal but declined to go into further detail.
He said its new payroll services would help lighten the administrative
burden on SMEs and added that it will consider expanding the service to European
customers over time.
"We have been moving into the payment processing space for some time and our
SME customers say running payroll services is becoming increasingly burdensome,"
said Harrison.
Sage, which is facing growing competition from Microsoft in the SME business
software market, is eyeing further acquisitions in countries where it lacks a
major presence, such as Italy, Scandinavia and in the Middle East, and
industries including healthcare, added Harrison.

[botwoman] 09/1/2006 08:54

more AFX

George O'Connor, software and computer services analyst at Shore Capital,
said the deal would help Sage expand into a growing market and was worth the
relatively high cost compared to previous acquisitions.
"This is Sage's largest acquisition since 2001 and is about 5.1 times
earnings valuation/sales. However it gives Sage access to a very attractive
market and allows them to sell more services to SMEs."
In a research note Cazenove was also upbeat about the acquisition. "We view
this as a smart move into a growing market -- Versus saw 26 pct revenue growth
last year -- and one which provides significant cross-selling opportunities in
both directions," said analysts Stacy Pollard and Sarah McKenna.
Last year Sage spent about 160 mln stg on five acquisitions.
(Adds analyst reaction and detail about acquisition)

[botwoman] 09/1/2006 08:49

up we go! market likes this deal then :)

[lyntwyn] 09/1/2006 08:17

SGE at it again, in US this time.

Sage buys US payment processor for about 184 mln stg in cash
LONDON (AFX) - Accountancy software company Sage Group PLC said it has
bought US company Verus Financial Management for about 184 mln stg in cash to
help it expand into the payment processing market.
Sage, which supplies small and medium-sized businesses (SMEs), said the
acquisition of Verus will help it meet growing demand from its customers for
linking payment processing services, such as credit card and cheque processing,
with its own accounting software.
Versus, which has a customer base of 101,000 SMEs in industries including
retailers, petrol stations and restaurants, had revenue of about 36 mln stg for
the year to Dec 31 2005, said Sage.
[e-mail]
nh/ak

[botwoman] 09/1/2006 08:16

ok, £184m for verus, thats a bit more pricey at 15.3 x operating profits. but revenues growing at 24% and....

"Within the Sage customer base, trials have shown a clear demand for linking
payment processing services with accounting software, so that dual data entry
is eliminated and data quality is ensured. To realise this additional long-term
revenue opportunity, Sage will enhance the value of Verus services by
integrating them with Sage accounting software."

[big investor2] 08/1/2006 18:25

makes sense. sage fit nicely with either Oracle or SAP. but Oracle digesting Siebel & others, SAP would be in stronger position. perhaps even MSFT might have a try ;)

[botwoman] 07/1/2006 14:21

for some reason it reminds me of morgan stanleys cutting of NEXT just a few weeks back to sell. egg all over their face now. sages underlying growth could accelerate this year if european economy continues to pick up. then maybe someone like oracle or SAP could snap them up. while the balance sheet remains undergeared, now would be the time to do it

[lyntwyn] 07/1/2006 13:21

06.01.06 :-3.5, (257.5) Merrill Lynch downgraded its stance on the stock to 'neutral' from 'buy' on valuation grounds, dealers said. In a note to clients, Merrill Lynch said the main question for investors is how much more they are willing to pay above the base valuation of the core business for the releveraging of the balance sheet. It said Sage is enjoying its typical fourth-quarter rally -- up 26% since its lows in mid-October and up 14% in total since the beginning of October -- and it might seem odd that it is downgrading its 'buy' recommendation, as the share price charts are looking very healthy indeed. However, Merrill said it has seen this fourth-quarter rally before; it usually only lasted until January and was followed by the typical first-quarter software gloom. The broker said it is not suggesting that Sage is a bad company -- it believes it is the most well-run tech company in the UK universe and certainly sees it as the core long-term holding in its sector. However, Merrill said it does not think that the end of the significant fourth-quarter tech rally is the best time to buy into the story. Since the end of November, it said the announcement of the 400m releveraging plan has seen Sages market value increase by over 400 mln, there has been no other fundamental news flow. Even if it assumes tax shield benefits from more debt and above cost of capital returns, it thinks the market value increase of 421m looks overdone, at least for the time being. Merrill's theoretical fair value remains at 265 pence, with no changes to earnings.

[sks999] 04/1/2006 14:29

Maddox,
Impressed with your Sept prediction (£2.60 in 3-4 months). Anything else showing in the crystal ball???

[maddox] 23/12/2005 11:55

Lyntwyn,

Agreed, the upward trend looks very strong - and the trend is your friend.

Regards, Maddox

[lyntwyn] 20/12/2005 13:45

Amazing strength in sp, can see it heading for 280 soon. But possibly a quick short in the interim if wider market falls back a bit?

[botwoman] 12/12/2005 14:00

however these guys managed to buy adonix on a p/e of 8 is beyond me, ive looked around adonix website, cant find any clues. adonix is a sizeable company



is there a catch? someone know the answer?

[Abuse team] 10/12/2005 01:21

Post removed by ADVFN

[jimcocallis] 10/12/2005 01:09

Options - when did he get the offer at 33p? Should be done away with - or at least costed in the accounts at the sell price. £2 mill for what?

[big investor2] 09/12/2005 15:24

i agree with you on adonix. sage has had a tremendous track record on integrating acquisitions and ramping up margins. adonix appears very cheap on a p/e of 8.2 (Dec 04 earnings) and 1.8x sales when sage is trading at nearly 4x revenues. and they only need to add about 5% to margins to get it to sage levels.

sage might look expensive on a p/e basis, but they generate a lot of cash and with growth and strong balance sheet those p/e's could fall very quickly

[maddox] 08/12/2005 19:28

Big Investor2,

Agreed. Sage have a sound strategy and an excellent record of integrating acquisitions - increasing the revenue and widening margins. Replicating it in new markets is a relatively low risk to supranormal growth.

Looking again at your point re Adonix - it should put approx 5% growth in the bag for next results without any further corp action.

There is also some nice financial alchemy that comes into play here. Sage is on a p/e of 21, whereas the takeout price for Adonix was equivalent to a p/e of 8. However, the market will tend to price the acquired earnings from Adonix at 21 (as part of Sage) immediately adding value.

A possible takeover, would be useful in getting the wingers to shut up; but I would not welcome Sage being taken out. On a longer term view I think that the current Sage management are best placed to execute their strategy and I do believe that any immediate premium will be quickly surpassed. You only have to put say a 13% multiplier on their earnings for a few years and a short-term view looks short-sighted.

Regards, Maddox

[big investor2] 08/12/2005 16:05

incredible these were trading below 240 this morning

[big investor2] 08/12/2005 13:22

maddox, underlying growth in 04/05 was 6%, apparently some analysts were disappointed with that. dont know why, revenues seemed bang in line. but perhaps growth will pick up in 05/06 as european economies recover to say 7-8%. add aquisitions on top and we could be looking at pretty high growth rates as you say

sage seem to be creating a powerful business, generating wonderful cash flows and growth with strong market positions and customer loyalty. it would surely be very difficult for someone else to emulate. so all this could make sage a takeover target. but what premium would they have to pay?