Sage Group: The ubiquitous accounting
software house has released results for the year to 30th September
2014. That aside the world is changing fast around them as the old model of
selling ‘physical’ software is replaced by cloud-based subscription services.
In these numbers organic revenue was up 4.9%, but within that recurring revenue
was up 7% and software (and related) services were down 0.5%. This reflects the
structural shift described above. On the back of margins moving up 40bps to
27.5%, eps came out 8.2% ahead at 22.69p. The nearly twice-covered dividend of
12.12p was up 7.1%. Cash conversion remained good at 107%, albeit a tickle down
on last time’s 112%. Their guidance is that they are on course to deliver 6%
organic revenue growth in 2015 and a 28% operating profit margin. The visibility
on this is helped by the fact that 73% of group revenue is recurring, up from
71% last year.
The shift to subscription revenues supports the view that Sage’s
earnings now have more visibility and are therefore worth a higher valuation.
International expansion continues to offer the opportunity of further long term
growth. It is worth noting that the group has changed CEO (Stephen Kelly;
ex-Micro Focus and HMG), FD (Steve Hare; ex-Apax, Invensys and Spectris) and
two non-execs, all in the last 12 months. This scale of change must add one
notch to any investment risk assessment, despite the good pedigree of the new
recruits. The shares have spiked 10% on these numbers and at 445p, FY2015 eps
of, say, 25p, is a full-ish looking 17.8x, for around 10% p.a. growth. A near
twice covered dividend of 13p would be a yield of 2.9%. These are not cheap
metrics, but the improving quality of the earnings provides some justification.
Maybe not one for today, but Sage is well worth keeping an eye on. (Neil Cumming, 8thDecember
2014)
These comments are not a personal recommendation to deal. Any
investments can fall as well as rise in value, so you could get back less than
you invest. I may have a financial interest in some of the stocks written
about. www.dividendpower.co.uk
or e-mail at info@dividendpower.co.uk Twitter:
@DividendPower
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