Tuesday, 10 December 2013

Sage Group - New Purchase

Many people will be familiar with this leading accounts and payroll software company. Sage was founded by a Newcastle University graduate, Dave Goldman in 1981. In 1989, the company floated on the London Stock Exchange and expanded rapidly to become a global operation. Sage entered the FTSE 100 in 1999 riding the crest of the dotcom boom.

Unlike most tech companies which fizzled out as quickly as they rose, Sage has continued to grow its business both organically and via acquisitions and currently has over 6 million customers worldwide and a market cap of £4.1bn. Sage operates in many European countries, North America, South Africa, some N African and Middle East countries, Australia, New Zealand, Malaysia, Singapore and most recently Brazil.


Last week the Company announced final results for the year to 30th September 2013 (link via Investegate). Underlying revenues increased 4% to £1.26bn, earnings were up 12% at 22.27p and adjusted dividend is up 6% at 11.32p (rebased).  The dividend for the year is covered 2x by underlying earnings per share. Also, last June, the Company paid out a further 17p per share special dividend.
Sage announced a strong acceleration in adoption of Sage One - their cloud solution for smaller businesses - with over 21,000 paying subscribers in the UK & Ireland, an increase of more than three-fold in the past 12 months

Commenting on the results Guy Berruyer, Chief Executive, said: "I am pleased to report a strong set of results, with good growth across all regions and our strategic initiatives progressing well.  These results highlight the strong appeal of our offering to SMEs, great execution in delivering on our plans and the benefit of a clear strategy, which focuses on our most significant growth opportunities. The strategy is working and growth is accelerating.  We remain confident of achieving our target of 6% organic revenue growth in 2015, and anticipate further progress during the year ahead."

A feature of the year has been successful execution driving good results across all regions.  North America reported organic revenue growth of 6% for the year, a significant acceleration from the 2% reported in 2012. Highlights included good growth from premium support and the success of Sage ERP X3.

Europe achieved organic revenue growth of 2% for the year, a positive performance given the macroeconomic environment and an improvement on growth of 1% in 2012.  The highlight was the UK & Ireland, with organic revenue growth of 5% for the year, although it was encouraging to see France and Germany return to growth in H2 and for Spain to exit the year with modest growth.

AAMEA delivered good organic revenue growth of 9% (2012: 12%), with a very strong performance in South Africa offset by a weaker Australian performance.  Highlights for South Africa included a strong mid-market performance and strong growth in the rest of Africa.  Whilst Brazil is not included in organic growth until 2014, the business delivered good growth notwithstanding the slowdown in the economy.

Approximately 15% of Group revenues are now generated from attractive growth markets in AAMEA and Brazil.

Sage has demonstrated its ability to expand its operation and achieve good levels of growth. The Company have doubled revenue growth from 2% to 4% over the past 12 months and say they are confident of delivering their target of 6% revenue growth in the coming year.

I have now added it to my ISA portfolio at the initial price of 369p and yield of 3%.

As always, please DYOR.

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