Sage Group Ordinary 1p (SGE)

Company overview

Founded in 1981 whilst studying together at Newcastle University, David Goldman together with Paul Muller and Graham Wylie, Sage initially developed estimating and accounting software for small businesses. Today, the group’s core activity remains the development, distribution and support of business management software products to a range of smaller and medium sized businesses. Products include the renowned Sage accounting package, payroll and human resources software, Customer Relationship Management (CRM), fixed asset management and healthcare software. Headquartered in Newcastle upon Tyne, it now has 6.3 million customers and 13,400 employees worldwide. Sage operates in over 24 countries covering the UK, Europe, North America, South Africa, Australia, India and China.

HL Comment (24 January 2012)

In a trading statement published today, software provider Sage Group said its trading performance since the start of the year had been satisfactory and in line with expectations. In November, Sage announced that it had completed the sale of Sage Software Healthcare LLC ("Sage Healthcare"), its subsidiary offering practice management and electronic health record solutions to US physician practices, to Vista Equity Partners .The group received £200 million from the proceeds of the disposal. In a separate statement, a share buyback programme was started and, to date, 17.7 million shares have been repurchased for an aggregate consideration of £50million, added the group. In cautious outlook commentary, management said it was mindful that the macro-economic environment remained challenging for Sage's customers, but it was able to cope with the ups and downs of the economic cycle.

Negative Points:

• Competition is continuing to grow in the small to medium-sized enterprises (SME) market where barriers to entry are relatively low, attracting more companies to enter the market. Germany's SAP and Microsoft are much bigger companies than Sage and could disrupt market trends.
• The company's core (SME’s) customer base appears to have suffered more at the hands of the banking credit crisis.
• Sage has exposure to foreign exchange risk, notably Euro/US$.
• Management reported that net debt at 30th September 2011 was £24.9 million.

Positive Points:

• Management continues to aspire confidence to accelerating growth.
• The group's share buy-back programme, following the sale of Sage Healthcare in the US is set to continue.
• The company, which marked its 30th anniversary last year, has more than six million customers and more than 12,300 employees in the 23 countries in which it operates.
• Strong operating cash generation continued to be enjoyed. Group net cash at 31st December 2011 stood at £149.8 million.

Consensus:

On balance, market consensus remains a cautious buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: British pound.