Sage Share Discussion Threads

[billcatchpole] 23/1/2014 11:05

Sage
427p+14p
Questor says BUY



Sage Group


AN UNEVENTFUL trading statement from an accounting software company is probably about as boring as the stock market gets but investors who overlooked Sage on that basis could be missing out on returns of up to 20pc each year for the next two years, say analysts.


The driving force of those returns for shareholders is that Sage is growing again. "Our performance in the first quarter is in line with our expectations, with good growth maintained across all regions," chief executive Guy Berruyer said in an update on trading for the first three months ended December.


Sage increased revenue by 4pc on average last year, but the implied growth rate in the second half was 5pc. Mr Berruyer says the software group is on target to deliver revenue growth of 6pc by 2015, which would be double the historic 3pc average rate.


High single-digit growth in revenue doesn't sound all that exciting, but it is all Sage needs for profits to accelerate. At the same time as quickening sales, the company is looking to increase the pricing on its products.

Sage typically provides an accounting software system for an initial fee and then adds on charges for providing support. That support creates recurring revenue - like a snowball rolling downhill. Analysts from Espirito Santo estimate that up to 85pc of group revenues come from just a quarter of its customer base.

Once a customer has a computer system in place that carries out essential activities such as accounting and payroll, for instance, they are unlikely to go through the expensive and risky process of changing it. Analysts believe this dependency on Sage gives the business the ability to increase prices and boost profits further.

"We conclude that the stock has the potential to deliver up to 20pc annual return," said Vijay Anand, from Espirito Santo.

For investors, the best thing about Sage is that it generates a lot of cash, and it likes returning that money to shareholders.

Operating cash flow increased by £33m, to £417m last year. Sage returned all of that and more through dividends, special dividends and share buybacks. The company has maintained its commitment to the share buyback programme in the year ahead, and analysts believe that could be worth up to £200m, or 17p per share.

Once the man in charge of the numbers has his feet firmly under the table, there could be more announcements about increasing returns to shareholders. Steve Hare joined Sage as chief financial officer only three weeks ago but he has more than 10 years' experience in top finance jobs, most recently at Invensys between 2006 and 2009.

The shares, trading on 18 times forecast earnings, do not look cheap. Analysts from Panmure Gordon are even more critical: "Once again, we quibble about the valuation which jars against the incipit growth."

Questor believes they can't see the wood for the trees. In a stock market fuelled by quantitative easing, most shares in the FTSE 100 are valued highly. Sage might be one of these but that doesn't mean the price can't and won't rise more. The shares are only marginally above its long-run price-earnings ratio of 16 times, and cheap relative to software sector peers on 21 times.

The consensus earnings estimates for Sage are relatively conservative, so if the company delivers on its growth and profit promise, they will need upgrading.

The balance sheet is strong, the free cash flow and earnings cover the dividend more than twice, and it offers a forecast yield of 3pc.

Questor recommended the shares last year (Buy, 373p, December 3) and regular readers of the column have enjoyed 14pc gains since then. There should be more to come. Buy.

[essentialinvestor] 22/1/2014 13:50

With a couple of exceptions they have been a country mile behind here.

[maddox] 22/1/2014 13:23

Hi Guys,

An excellent IMS highlighting good performance in previous trouble spots, namely US and Europe. Also, making continued progress towards 6% organic growth target (against 4% 2013, 2% 2012).

The brokers are being typically slow in catching up with events Espirito Santo being the first to increase its price target to 480p (+20%).

The current Broker recommendations are pretty much unchanged from 27 Dec as follows:

Strong Buy 3
Buy 1
Neutral 10
Sell 1
Strong Sell 6 +1
total 21 +1

Sage's share price has been consistently above the majority of broker's targets (apart from Canaccord Genuity 1530p and now Espirito Santo). So I would expect to see broker upgrades and substantially revised price targets coming through that should consolidate the share price (come on chaps get your models out and replace 2% with 6%).

Regards Maddox

[uknighted] 22/1/2014 12:24

Excellent IMS.

[uknighted] 17/1/2014 19:53

Highest close for some time.

[mellorscarthwaite] 05/1/2014 10:31

Good one Maddox

[maddox] 03/1/2014 13:30

WH Ireland tip Sage for 2014

"Subscription based
services grew 6%, reflecting the strategic
shift towards recurring revenue. Over 70% of
revenue is now recurring; with renewal rates
typically over 80%, there is clearly a defensive
element to Sage's earnings. Due to the bias
towards subscription, customers tend to pay
in advance of services provided. This factor,
alongside minimal capex requirements, means
that Sage is able to generate consistent cash
flows. The group has an excellent track record;
growth in cash flow has broadly kept pace with
revenue over the past decade. The group is
well placed to benefit from the advent of cloud
computing with products such as Sage One;
this will help drive growth. With a free cash flow
yield of 5.9%, we see scope for further upside.
John Goodall"

[maddox] 27/12/2013 16:54

Another good day today up 3.5p to 406.3p - looking solid above 400p. The share price was 347.4p prior to the results on the 3rd Dec and is now up 16.9%.

[maddox] 27/12/2013 09:31

The current Broker recommendations are as follows:

Strong Buy 3
Buy 1
Neutral 10
Sell 1
Strong Sell 5
total 20

There has been one upgrade and two downgrades since the final results. On balance solidly neutral. So the Analysts aren't in a rush to revise their opinions.

Regards Maddox

[billcatchpole] 23/12/2013 15:48

*tumbleweed*

Shares over £4.00 for the first time in a decade, and no comments.....

I've held these throughout this period, tucked away the divi's and am now feeling pretty pleased. Unspectacular perhaps, but one of the linchpins of my portfolio.

[maddox] 04/12/2013 12:45

A very strong statement of future growth:

Guy Berruyer, Chief Executive, said: "I am pleased to report a strong set of results, with good growth across all regions and our strategic initiatives progressing well. These results highlight the strong appeal of our offering to SMEs, great execution in delivering on our plans and the benefit of a clear strategy, which focuses on our most significant growth opportunities. The strategy is working and growth is accelerating. We remain confident of achieving our target of 6% organic revenue growth in 2015, and anticipate further progress during the year ahead."

The Analyst Briefing is worth listening to:

A replay of the call will also be available for two weeks after the event: Tel: [phone], pin code: 643480#.

[miata] 04/12/2013 11:20

Organic revenue growth of 4% in the year.

Proposed final ordinary dividend per share of 7.44p per share (2012: 7.02p per share), resulting in a total ordinary dividend of 11.32p per share (2012: 10.68p per share), an increase of 6% to be paid on 10 March 2014 to shareholders who are on the register of members on 14 February 2014.

[maddox] 04/12/2013 09:37

Fantastic set of results from Sage today. Its been pretty boring on this board for a long time now but this should change. The organic growth is pretty impressive but what is really interesting is the Sage has found its way back to a growth trajectory.

So with growth returning, a progressive dividend policy and share buy-back programme - Sage is going to look increasingly attractive shareholders.

Regards, Maddox

[miata] 28/10/2013 09:03

28 Oct 2013 Sage Group (The) PLC SGE Jefferies International Buy 335.25 331.90 320.00 380.00 Upgrades

[major clanger] 04/7/2013 15:16

Some broker feedback from SGE's analyst day:

www.brokerforecasts.com/news/article/articleId/4626913

[miata] 10/6/2013 21:55

Sage Group sold Sage ACT! and Sage Saleslogix to Swiftpage and Sage Nonprofit Solutions to Accel-KKR. Like Invensys (which just sold its rail business) it is returning cash to its shareholders. It is a smaller company and with current very low interest rates seemingly has no earnings enhancing place for the funds released. True it maintains EPS for management and ensures the share price holds up. Personally I never think that sharebuybacks are large enough to benefit the small investor and would rather have the cash back.

[jimandsons] 10/6/2013 18:16

I'm a bit dim and I wondered if anyone could explain what is going on, or rather why it is going on?

Return cash via special dividend instead of simply more share buyback.

Immediately seek additional funding facilities.

Consolidation of shares by 5%.

I understood the 1:5 share split when the price rose to a big number, but I simply cannot understand why anyone would want the cost of all of this apparently pointless activity.

The only explanation I have seen is some kind of conspiracy theory that it is all to artificially boost EPS for management bonuses. Surely not?

Are we all clueless "swivel eyed loons" , or is there a rational explanation?

I have zero financial expertise, this is a genuine question, not some kind of clever comment.

[major clanger] 21/5/2013 19:52

Dumped by Sanlam Securities today, I see...

[a77] 15/5/2013 10:27

Drop more than divi!

[miata] 15/5/2013 10:02

Nice increase yesterday maintained this am - after adjusting for Ex dividend.

[a77] 15/5/2013 09:02

Yes, so they could have just repurchased their own shares rather than this long winded cap re-org and special cash div. Fees for advisors...............
Anyways nice increase yesterday wiped out this am - pomo still continuing so may see further gains yet.

[miata] 14/5/2013 18:41

I might speculate that directors bonuses/share awards are probably linked to improvements in EPS - a buy-back generally results in an increase in the EPS because the number of outstanding shares reduces.

[a77] 14/5/2013 18:22

Why didn't they re purchase their own shares instead of this special div lark?
Less cost & administration.
Is there a tax benefit? Or is the share price now too high for the repurchase to have been beneficial?