Company Reports

Narrow-moat Sage Group reported 9.5% organic revenue growth in its first-half 2024 results, with Sage business cloud’s organic revenue up 18%. While these results were broadly in line with our estimates, management marginally tempered fiscal 2024 organic revenue growth guidance from 10% to 9.5%. The underlying operating margin came in at 22%, representing a 160-basis-point expansion versus a year prior, and management expects the positive trend to continue in fiscal 2024 and beyond. Shares are trading down intraday, likely the result of the trim to guidance. We don’t expect to make a material change to our GBX 880 fair value estimate. At current levels, the shares remain overvalued.

Narrow-moat Sage Group reported 10% total organic revenue growth in its first-quarter fiscal 2024 trading update with Sage business cloud's organic revenue up 18%. This is in line with our full-year growth expectations and the company's fiscal 2024 guidance, which was reiterated. Sage continues to expect organic total revenue growth in 2024 to be broadly in line with 2023 (10%), with operating margins expected to trend upward in 2024 and beyond. Specifically, Sage is expecting around a 50-basis-point to 100-basis-point improvement in the underlying operating margin in 2024. Shares were trading flat intraday. We don’t expect to make a material change to our GBX 880 fair value estimate. At current levels, the shares look overvalued.

Sage Group is in the later stages of its transformation from an on-premises software provider selling perpetual licenses to a cloud-based software-as-service, or SaaS, business model where it sells its software products via subscription.

Narrow-moat Sage Group reported fiscal 2023 results and its initial 2024 outlook that were largely in line with company-compiled consensus and our estimates. Somewhat surprisingly, the stock closed up over 13%. We think this was driven by Sage’s strong free cash flow growth and announcement of a new share buyback. We’re raising our fair value estimate to GBX 880 from GBX 810 due to an improvement in our expectations for the pace of margin progress. At current levels, the shares look overvalued.

Narrow-moat Sage Group reported results in its third-quarter trading update that were broadly in line with our expectations. Total revenue in the third quarter was up 10% versus last year, while recurring revenue increased 11% despite a tough comparator, driven by continued growth across the Sage Business Cloud portfolio. 2023 guidance was maintained. Shares were up around 1% intraday. We don’t expect to make a material change to our forecast or GBX 810 fair value estimate. At current levels, the shares look slightly overvalued.

Narrow-moat Sage Group reported solid first-half results with revenue and profitability slightly ahead of company-compiled consensus and our estimates. Shares reacted positively, up around 4% intraday while peers were generally flat to negative. Overall, first-half results are tracking broadly in line with our long-term view. Consequently, we don’t expect to make a material change to our GBX 810 fair value estimate. At current levels, the shares look fairly valued.

We are initiating coverage on the Sage Group with a narrow moat rating and GBX 810 fair value estimate. Our fair value estimate is equivalent to a P/E ratio of 29 times, based on fiscal 2023 estimates, which is moderately above its historical average of around 25 times. We think the implied optimism is warranted given we expect profit growth to accelerate going forward now that Sage has reached the inflection point in its transition to the cloud. Our estimates are broadly in line with consensus. Consequently, we see the stock as fairly valued at current levels.

Sage is in the later stages of its transformation from an on-premises software provider selling perpetual licenses to a cloud-based software-as-service, or SaaS, business model where it sells its software products via subscription.

We notify clients of our intention to cease coverage on Sage in November 2022 and place its fair value estimate under review. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to client demand, investor interest, and staffing. The break in coverage of Sage is likely temporary and we will likely look to reinitiate in the future.

The emergence of cloud-based software in the early 2000s, along with the proliferation of smartphones and tablets and the emergence of software-as-a-service, or SaaS, business models, revolutionized the global software market. Established software providers, such as Sage Group, which historically sold on-premises software via perpetual software licences, experienced an increase in competition and disruption of established business models. The small and medium enterprise, or SME, accounting software market experienced numerous new cloud-native SaaS providers, such as Xero, which have rapidly grown and won market share from incumbent providers.

We maintain our fair value estimate for narrow-moat-rated Sage Group at GBX 630 per share following its acquisition of Lockstep and its third-quarter trading update for the period ended June 30, 2022. At current market prices, the shares look overvalued to us and are trading on a fiscal 2022 price/earnings ratio of 30, a ratio we do not believe is justified by Sage’s likely earnings growth rates. Management has updated its guidance for recurring revenue growth for the full fiscal year 2022 at 8% to 9%, toward the top end of its previous guidance range and in line with our estimates.

The emergence of cloud-based software in the early 2000s, along with the proliferation of smartphones and tablets and the emergence of software-as-a-service, or SaaS, business models, revolutionized the global software market. Established software providers, such as Sage Group, which historically sold on-premises software via perpetual software licences, experienced an increase in competition and disruption of established business models. The small and medium enterprise, or SME, accounting software market experienced numerous new cloud-native SaaS providers, such as Xero, which have rapidly grown and won market share from incumbent providers.

We have maintained our fair value estimate for narrow-moat-rated Sage Group at GBX 630 per share following its first-half financial result. Sage’s income statement continues to be somewhat distorted by the combination of strong revenue growth from its relatively new cloud-based software products but declining revenue from its legacy on-premise software products. Management maintained guidance that fiscal 2022 organic recurring revenue growth would be between 8% and 9%, which is in line with our forecasts. It also said the organic operating margin would trend up in fiscal 2022 and beyond, which is also in line with our expectations that margins will improve following the recent business divestment program, and as cloud software grows as a proportion of total revenue.

The emergence of cloud-based software in the early 2000s, along with the proliferation of smartphones and tablets and the emergence of software-as-a-service, or SaaS, business models, revolutionized the global software market. Established software providers, such as Sage Group, which historically sold on-premises software via perpetual software licences, experienced an increase in competition and disruption of established business models. The small and medium enterprise, or SME, accounting software market experienced numerous new cloud-native SaaS providers, such as Xero, which have rapidly grown and won market share from incumbent providers.

Narrow-moat-rated Sage Group’s first-quarter trading update was reasonably brief and disclosure and management’s comments were reasonably guarded, as is usually case. First-quarter revenue was in line with our expectations and management maintained full-year guidance, that recurring revenue growth will be between 8% and 9%.

The emergence of cloud-based software in the early 2000s, along with the proliferation of smartphones and tablets and the emergence of software-as-a-service, or SaaS, business models, revolutionized the global software market. Established software providers, such as Sage Group, which historically sold on-premises software via perpetual software licences, experienced an increase in competition and disruption of established business models. The small and medium enterprise, or SME, accounting software market experienced numerous new cloud-native SaaS providers, such as Xero, which have rapidly grown and won market share from incumbent providers.

We maintain our GBX 600 per share fair value estimate for narrow-moat Sage Group following the release of full-year fiscal 2021 results. Sage’s full-year underlying revenue and EBIT of GBP 1,846 million and GBP 358 million broadly aligned with our expectations. At the current market price of GBX 801 per share, shares continue to look overvalued, trading at a 33% premium to our fair value estimate.

The emergence of cloud-based software in the early 2000s, along with the proliferation of smartphones and tablets and the emergence of software-as-a-service, or SaaS, business models, revolutionized the global software market. Established software providers, such as Sage Group, which historically sold on-premises software via perpetual software licences, experienced an increase in competition and disruption of established business models. The small and medium enterprise, or SME, accounting software market experienced numerous new cloud-native SaaS providers, such as Xero, which have rapidly grown and won market share from incumbent providers.

The emergence of cloud-based software in the early 2000s, along with the proliferation of smartphones and tablets and the emergence of software-as-a-service, or SaaS, business models, revolutionized the global software market. Established software providers, such as Sage Group, which historically sold on-premises software via perpetual software licences, experienced an increase in competition and disruption of established business models. The small and medium enterprise, or SME, accounting software market experienced numerous new cloud-native SaaS providers, such as Xero, which have rapidly grown and won market share from incumbent providers.

The emergence of cloud-based software in the early 2000s, along with the proliferation of smartphones and tablets and the emergence of software-as-a-service, or SaaS, business models, revolutionized the global software market. Established software providers, such as Sage Group, which historically sold on-premises software via perpetual software licences, experienced an increase in competition and disruption of established business models. The small and medium enterprise, or SME, accounting software market experienced numerous new cloud-native SaaS providers, such as Xero, which have rapidly grown and won market share from incumbent providers.