Much was riding on Sage’s (SGE) full-year results to September, after an eventful – and rather unsettled – few months. Back in April, the technology group reduced its full-year organic sales guidance by one percentage point to around 7 per cent – noting that half-year organic sales growth to March had come in below bosses’ expectations at 6.3 per cent. This stemmed partly from a decline in the rate of recurring revenue momentum; disappointing news, given Sage’s intended transition towards becoming a software-as-a-service (SaaS) subscription-based business with strong repeat sales.
In August, we learnt that chief executive Stephen Kelly was stepping down after four years at the top – during which time the plan to become a leading SaaS player was “defined”. Former chief financial (and latterly operating) officer Steve Hare has replaced Mr Kelly.
Against this backdrop, the latest numbers from Sage look relatively encouraging. Organic revenues grew 6.8 per cent, broadly in line with revised targets, while the organic operating margin came in at 27.8 per cent – up from management’s estimate of 27.5 per cent.
Key to this momentum was an improved second half, attributed to Sage’s “renewed focus on high-quality subscription and recurring revenue”. The UK and Ireland, which had previously suffered from “inconsistent execution”, saw sequential increases in recurring revenue growth for each of the respective six months, ending at 7 per cent. And, overall, software subscription revenues constituted 46 per cent of Sage’s top line, up from 39 per cent in FY2017.
Now Sage will “sharpen its focus” on shifting towards an SaaS model. As part of this, it will expand the capabilities and reach of its Sage Business Cloud platform, whose annualised recurring revenues have hit £434m – growing at 51 per cent, with £52m added in the fourth quarter of 2018 alone. But this acceleration will require a £60m investment. So management expects FY2019’s organic operating margin to fall to between 23 per cent and 25 per cent. Moreover, the transition may cause organic revenue growth to slow in the short term.
According to Bloomberg consensus forecasts, analysts expect adjusted EPS of 36p for FY2019.
| SAGE (SGE) | ||||
| ORD PRICE: | 511p | MARKET VALUE: | £5.54bn | |
| TOUCH: | 511-511.8p | 12-MONTH HIGH: | 825p | LOW: 491p |
| DIVIDEND YIELD: | 3.2% | PE RATIO: | 19 | |
| NET ASSET VALUE: | 122p* | NET DEBT: | 50% | |
| Year to 30 Sep | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 1.35 | 279 | 17.3 | 12.20 |
| 2015 | 1.44 | 276 | 18.1 | 13.10 |
| 2016 | 1.44 | 242 | 17.4 | 14.20 |
| 2017 | 1.72 | 342 | 23.9 | 15.42 |
| 2018 | 1.85 | 398 | 27.2 | 16.50 |
| % change | +8 | +16 | +14 | +7 |
| Ex-div: | 07 Feb | |||
| Payment: | 01 Mar | |||
| *Includes intangible assets of £2.27bn, or 209p a share | ||||
