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Sage still looking a wise bet

The UK's long-term software leader is undergoing two transformations: to the cloud and to its software-as-a-service model
Sage still looking a wise bet

Sage (SGE) by name and sage by nature; or at least the eponymous company is the biggest technology company on the London market (unless you really count Just Eat Takeaway (JET) as a tech stock) and its high quality operation has stood the test of time. It provides accounting and business software, which it sells mostly to small and medium-sized companies. Its suite of software and solutions supports its clients in a range of accounting tasks, including invoicing and payroll. 

IC TIP: Buy at 712p
Tip style
Growth
Risk rating
High
Timescale
Long Term
Bull points

Growing recurring revenues

Fat return on capital

Highly cash generative

Bear points

Heavy development spending 

Competition heating up

The quality of Sage’s business model has also been improving for some time, as the group transitions away from a lumpy licence model to a mainly subscription-based service, as well as pushing cloud-based products. It generates its income from three key sources: software and software-related services (SSRS), processing, and recurring revenue from subscription and maintenance-and-support contracts. The proportion of recurring revenue within the group total has been growing over the past five years - 83 per cent in 2019 compared with 67 per cent five years earlier.

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