Sage Group, famous for its Sage 50 accounting software, is a UK based software company specializing in accounting, HR and payroll, payment processing and so much more. While the UK is not well known for having huge technology companies, Sage is one of the few high profiles ones.
- History of Sage Group
- Latest financial statement
- Outlook for the future.
History of Sage Group
Sage Group (SGE) was founded in 1981 in Newcastle-upon-Tyne, UK to develop estimating and accounting software. Key founders include David Goldman, Paul Muller and Graham Wylie. Sage launched its now famous sage software in 1984 causing the business to grow massively. At the time the company was averaging 30 sales in a month, after the launch of sage software sales grew to over 300 copies a month in 1984.
Sage was listed on the London Stock Exchange in 1989 and entered the FTSE 100 index in 1999. Sage stock was named as one of the best performing stocks of the 90s. In the 2010s Sage Group made a number of acquisitions including that of Compass in 2017, an analytics and benchmarking company. They also purchased Fairsale in 2017, a Human Capital Management cloud-based platform.
Latest Financial Statement
In the last quarter ending December 2020 (Q1 for SGE) Sage Group saw total revenue increase by £6m to £447m, from £441m in 2019. There was a 5% (£18m) rise in recurring revenue to £408m, up from £390m in 2019. This rise in recurring review off set a decline in traditionally sales which fell by £12m.
These results are consistent with Sage wanting to to move away from traditional sales model to a subscription based service. The company saw 11.3% quarterly growth in its subscription sales which now makes up 68% of total revenues.
The company saw strong growth in its Norther America operations which grew by 6.4%, followed by Northern Europe which grew at 3.3%. Sage has made a commitment to create a simpler and more focused business which has resulted in two sales of non-core assets in the last quarter. Its Sage Poland business as sold for £66m along with its Asia and Australia business for £95m.
The Group ended the quarter with a very strong balance sheet. It holds £1.2bn in cash and available liquidity, with only £129m of debt (a reduction from £151m in September 2020). Essentially, Sage Group has entered 2021 with a very strong balance sheet despite the pandemic.
Sage Group has a current market capitalization of £6.5 billion with Earnings Per Share (EPS) at 28.38p. At current share prices and EPS the company has a Price to Earnings (P/E) ratio of 26.3. When compared to the P/E of the FTSE 100 which stands at around 23, it is around average value. The Group’s share price is down 24% over the last year however on a 5 year basis is remains flat.
With a current ratio of 1.23 its current assets cover its current liabilities very well. The company is also a strong dividend paying company having increased its dividend every year since 2000. It has a dividend compound annual growth rate (CAGR) of 5.66% over the last 5 years. At current share prices Sage’s dividend yield stands at respectable 2.89%, which is a very good payout ratio of 60%.
Over the last 5 years the share price has been relatively flat ranging between a low of 526p and 818p, I can see this continuing for the next year or two. However, the stock has proved to be a very stable one while at the same time growing a consistent dividend. Therefore, it should be very attractive to dividend investors.
Outlook for the Future
Sage Group faces two manage challenges for the future. First to maintain growth against other online rivals, second, its switch to an online subscription service. This second of these challenges seems to be going well with its 5% increase in subscription sales in the last quarter.
In the companies last quarter statement they said: while the near term remains uncertain, these foundations position us well to support customers as they adopt digital business models, and I am confident that our additional investment in Sage Business Cloud, and in particular cloud native solutions, will deliver stronger growth and drive the future success of the Group.
I feel that Sage has been adapting well to changes accelerated by the pandemic to move to a more online based subscription service. Sage is in a very good position to compete with online rivals and is continuing to invest in its Sage Business Cloud sector which should sustain its revenue growth for years to come.
Generally, it has a very simple business model which they have been simplifying further by selling non-core assets to focus on their primary business model. I believe they will continue to grow steadily over the next decade along with its dividend. I currently and will continue to hold shares of the Sage Group for years to come.
None of the content in this article should be considered financial advice, I am not a financial advisor and you should always do your own research prior to investing. These are my opinions only.