Growth initiatives aren't always compatible with increased profitability. Sage (SGE) saw organic recurring revenues rise by 10.8 per cent over the 12 months to September 2019 – up from 6.7 per cent a year earlier. Good news, perhaps, given the accounting software group’s ambition to “become a great SaaS [software-as-a-service] company”. But ongoing investment to accelerate its “strategic execution” led organic operating profits to fall 13 per cent to £432m, on a margin of 23.7 per cent, representing a 510 basis point contraction from FY2018.
We already knew that the margin would land at the lower end of a 23-25 per cent guided range; Sage had said so in a July trading update, which triggered a steep markdown in its shares. At the time, the group revealed that revenues for software and software-related services (SSRS) had fallen by 15.5 per cent to £195m, and would exceed this rate of decline for the full year. In the event, SSRS sales contracted by 17.9 per cent, although this was partly a reflection of a continuing shift towards a subscription-based model.
Underlying cash conversion came in at 129 per cent. The group has also announced a capital return of £250m, partly reflecting the anticipated proceeds from the recently announced sale of Sage Pay.
Bloomberg consensus estimates give September 2020 EPS of 29.9p, rising to 32.3p in FY2021.
| SAGE (SGE) | ||||
| ORD PRICE: | 713p | MARKET VALUE: | £7.8bn | |
| TOUCH: | 713-714p | 12-MONTH HIGH: | 826p | LOW: 491p |
| DIVIDEND YIELD: | 2.4% | PE RATIO: | 29 | |
| NET ASSET VALUE: | 138p* | NET DEBT: | 26% | |
| Year to 30 Sep | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 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 |
| 2019 | 1.94 | 361 | 24.5 | 16.91 |
| % change | +5 | -9 | -10 | +2 |
| Ex-div: | 6 Feb | |||
| Payment: | 2 Mar | |||
| *Includes intangible assets of £2.3bn, or 214p a share | ||||
