The Sage Share Discussion Threads

[contrarian joe] 27/2/2017 17:44

Thanks Maddox.

It would have cost you as much as 761p to buy Sage shares last October. On Thursday, they could be had for less than 600p, although you'd have had to be quick.

Chief executive Stephen Kelly and chairman Donald Brydon were. Kelly paid £149,000 for 25,000 shares in the accountancy software giant at 596.5p, a post-referendum low. Brydon got his 10,000 shares for 599.9p.

Clearly, the market shares their optimism. Losses following Thursday's largely in-line first-quarter trading update are unwinding quickly. At 611p, currently, both have made a nice paper profit already. But they should do better.

Sage had already warned that the start of 2017 would be slower, and the US payments business did peg underlying growth at 5.1% for the three months. A year earlier, it had been 6.6%, and 6% over the whole 12 months. However, strip out the up-for-sale US payments operation it was 5.9%.

David Toms, an analyst at Numis Securities, rates the shares 'add' with 765p price target.

[maddox] 24/2/2017 14:14

Sage tipped as a BUY at 633p in Investors Chronicle:

'We feel multinational accounting and payroll software specialist Sage(SGE) is using its dominant market position to make the most of the opportunities on offer while competently managing the transition of older business.'

'We feel a forward PE ratio of 19 times 2018 earnings is a price worth paying for a dominant player that's rising to the challenge of changes in its industry and embracing the opportunities for growth.'



Regards Maddox

[maddox] 27/1/2017 11:43

Hi Joe,

Agreed. Mr Market is in a fickle mood - any negatives and the share price plummets.

Their margin dipped and recovered last year and I have every confidence in them hitting their full year targets of 6% organic growth and 27% margin this year.

As you say good opportunity to get on board or top-up.

[contrarian joe] 26/1/2017 22:04

Added here today,mixed update which the board did highlight in their 2016 Annual report for weaker margins Hi 2017 followed by stronger H2 margins.It seems i'me in good company.Nick Train,Terry Smith,Hugh Yarrow,Richard Buxton,all have them in their top ten holdings, followed by Standard Life 7% & Schroders 5%.

[squash90] 24/1/2017 08:35

50p plus drop in a week

[njb67] 14/12/2016 08:28

CJ

You are correct, the underlying eps gives a better reflection of the valuation. Using 2016 results, SGE currently trades around 23x earnings and 25x when net debt is taken into account. If SGE can continue to grow the business, profitability and dividends, then it may well deserve this multiple. One to watch as you say.

[contrarian joe] 13/12/2016 21:35

Statutory eps 2016 19.28. Underlying eps 2016 27.48 " " eps 2017 32.1 ( estimate) " " eps 2018 35.2 ( estimate) The statutory 19.28 eps for 2016 was due to a £110m non recurring cost,might be wrong, that's how I've read it.If those figures are to be believed then we have a 2018 p/e of 18.5.Bounced of it's upward trend line today,on my watch list,will accumulate on any weakness.

[njb67] 13/12/2016 15:21

I like the company but not the valuation - 32x earnings (closer to 40x when you take into account the £1bn debt). While Sage rightly commands a premium due to its historic growth and prospects, it is very fully valued already hence will be prone to changes in market sentiment.

GLA

[maddox] 13/12/2016 14:26

Hi Squash,

Regarding the current share price dip - it is not within my gift to offer an explanation. For example there are no Hedge Funds holding large short positions (>0.5% of share capital).

In general, the market is not 'rational' or 'efficient' at setting prices. As Warren Buffett said "I'd be a bum on the street with a tin cup if the markets were always efficient" The market will thus oscillate between under-valuing to over-pricing and both present opportunities to the PI. In the case of Sage three months ago Mr Market was offering us the shares at 752p but now only 624p and yet the results are excellent?!?

IMHO I cannot envisage them getting much lower but I can certainly see them getting back to 700p plus.

Regards, Maddox

[squash90] 13/12/2016 12:35

Thanks Maddox

[maddox] 13/12/2016 10:29

Sage has hit its numbers again with this excellent set of results (full year to 30 Sept 16), the published highlights being:

• Achieved organic revenue growth of 6.1% (FY15: 6.0%) and the fastest rate of recurring revenue growth for a decade of 10.4% (FY15: 9.0%);
• Software subscription growth of 32.3% (FY15: 28.9%), in line with the planned transition and planned decline in SSRS revenue of 8.5% (FY15: decline of 0.7%);
• Customers embracing closer subscription relationships with 46% increase in software subscription contracts to just over one million (FY15: 690,000) and an increase in retention rates to 86% (FY15: 84%);
• Accelerating revenue growth in Europe, Africa and Brazil; slower performance in Asia (one off regulatory change in the prior year); growth in North America consistent with last year;
• Underlying cash conversion at 100%, supporting free cash flow of £254m and the 8% increase in full year dividend to 14.15p.


Sage is managing to maintain its performance whilst undertaking a major transformation:
>> Firstly, the conversion to Software-as-a-Service (SAAS) subscription pricing is continuing; and
>> Secondly, the new strategy for growth is reshaping the business quite dramatically.

SAAS pricing: Is very beneficial, customers like it and if fosters increased loyalty/reduces churn but at the cost of a short/medium term hit to revenue recognition. About 70% of revenue is now recurring and the growth rate is accelerating:

2013 – 6%, 2014 – 7%, 2015 – 9%, 2016 - 10.4%

So, at some point and it cannot be too far off this will drive up sales from its current 6% organic growth rate.

New growth strategy: CEO Stephen Kelly is making dramatic changes in pursuit of sales growth with 72% of the top leadership changed in the year. In Sales and Marketing, 300 staff left and 200 recruited with new skills in digital marketing.

The new strategy is a move away from being federated country–specific with many products to fewer global cloud-based products aimed at specific market segments – Start-up, Scale-up and Enterprise. The new entry-level mobile and revamped cloud-based products look attractive. To support this fewer regional language-specific centers will cover the globe. The cost savings generated, £51m p.a. so far, will be ploughed back into marketing and sales to target new customer acquisition.

My opinion: I like Sage’s existing attributes it has a strong economic moat, reflected in attractive margins and excellent cash conversion. It is the only global player in the SME accounting product market and so has the knowledge and expertise to cater to local tax compliance requirements. The new growth strategy makes sense with a new focus on start-ups and the opportunity to dominate this niche globally.

Whilst, it’s still early days and it is not yet reflected in the top-line numbers there is enough in these results to suggest that the new strategy is beginning to work.

Regards Maddox

[au24] 01/12/2016 14:49

Total dividend for year 2016 = 14.15p.

Write up in todays Mail,expansion mentioned.

[squash90] 11/11/2016 10:23

Why the drop over the last week ??

[maddox] 18/8/2016 08:36

Sage data breach update: There has been an arrest of a Sage employee:



...that's a result!!

[maddox] 17/8/2016 15:14

If you haven't spotted it there is a very nice piece of detailed fundamental analysis by Phil Oakley hxxp://www.sharescope.co.uk/philoakley_article113.jsp You cannot argue with the numbers but I also like to take a strategic analysis approach to understand the underlying drivers and competitive positioning.

I think that there is still more to come, so I will add on any fall-back in the share price in the wake of any profit taking.

Sometimes it pays to buy expensive.....Sage is a case in point.

Regards, Maddox

[maddox] 15/8/2016 09:09

There is a saying within the cyber security community 'that there are those businesses that have been hacked - and those that don't know that they have been hacked!' These announcements are unfortunately becoming a fact of business life, and destined to increase as mandatory reporting becomes the legal requirement.

Whilst, the news that Sage have suffered an internal breach of security is very disappointing it is unlikely this will cause a material cost to the business. Dido Harding CEO of TalkTalk was embarrassingly inept in handling the reporting their data breach incident last year - but long-term damage has been minimal and the share price recovered. It will be interesting to watch how well Sage respond and manage the PR. It is these, what I call, 'acid test' moments that provide a great insight into how good the management team of a business is. A serious challenge such as this, if well handled, can reinforce confidence that you can trust them with your personal investment in their business.

Regards Maddox

[montyhedge] 15/8/2016 07:23

Ouch, this could cost them.

[maddox] 28/7/2016 09:57

Another jump in the share price today up 9.5p to 710.5p as I post.

I'm wondering whether this is market reaction to the Sage Summit in Chicago. It seems that CEO Stephen Kelly has made a step-change in the pace of product innovation and is making a good job show-casing them in Chicago. That, together with the new partnerships and market positioning of Sage 'championing entrepreneurs' is starting to change perceptions. I like the bold ambition of Stephen Kelly and, whilst it's still early days, I think it'll come through in the numbers.

If you have seen anything else that might be driving this share price rise - please post it up.

Regards, Maddox

[maddox] 26/7/2016 19:06

Sage breaks 700p closing at 702.5p another high.

Q3 Trading Update (released at 5pm from Sage Summit in Chicago) - Sage on target with Group organic revenue increased by 6.0% in the third quarter, with growth of 6.1% for the first nine months of the year. So hitting their numbers whilst the conversion to Software As A Service (SAAS) - subscription pricing continues (up 33.2%).

Confident of achieving full-year guidance - at least 6% organic revenue and 27% organic operating margin. The H1 margin had slipped to 25% so the £50m cost reduction target in General & Admin expenses is coming through to get back to 27%.

No Brexit impact seen and consider Sage well placed to respond to any changes affecting their customers. Although, cannot be isolated from any general market slow-down.

So, on target and in-line, whilst the business transformation continues.

Regards, Maddox