Sage Group Ordinary 1p (SGE)

Company overview

The Group’s core activity is the development, distribution and support of business management software products to a range of medium and smaller sized businesses. Products include the renowned Sage accounting package, payroll and human resources software, Customer Relationship Management (CRM), fixed asset management and healthcare software.

HL Update (8 May 2008)

The group’s recent half year results came in at the top end of expectations, with the company’s reputation for defensive qualities generally being underlined. Half year adjusted profits rose by 9pc to £138m, whilst group revenues grew by the same amount to £640.4m. As for the geographical breakdown, expected weakness in the USA – predominantly softness within the healthcare division – was more than counterbalanced by strength in the group’s European businesses.

Overall, whilst management confirmed the generally challenging conditions, it also remained broadly confident for the outlook, highlighting both management changes made at the group’s US healthcare division and the potential for further bolt-on acquisitions to be executed. On balance, difficulties at the group’s US business still need to be addressed, but the results have provided overall reassurance. Market consensus opinion is currently tentatively positive in tone.

HL Comment (28 November 2007)

Headquartered in the North East of England, Sage is now the largest and only software related company represented within the UK’s premier stockmarket index, the FTSE 100. The group’s products have grown enormously since Sage was founded back in 1981 and now its software packages are used by over 700,000 companies across the UK and over 5.5 million businesses across the world.

In recent years, the group has been busy widening both its product range and its geographical reach, predominately via bolt-on acquisitions. The group’s recent full year results (late November 2007) saw adjusted pre-tax profits come in at £251.3m against £221.3m during the year previous (+14pc), as acquisitions helped sales rise by 30pc to a total of £1.15 billion. Organic sales growth, which excludes the effect of bolt-on-acquisitions, was 7pc and the management’s outlook statement was generally upbeat in its tone. The full year dividend was rebased, providing a near doubling over the previous year.

Sage shares have generally been viewed by investors as offering relatively defensive qualities in what can be a highly volatile industry. The core accountancy software product is vital to the daily operation of many businesses and the service support which Sage offers generates additional fee income. Around two fifths of group revenues are generated in the USA and concerns regarding super giant Microsoft moving in on the group’s marketplaces have been emanating for sometime. The optimists argue that this might make Sage an attractive takeover target to its bigger rivals. On balance, current market consensus is positive in tone.

All yield figures are variable and not guaranteed.

Fundamental Data

* Prior to 30th September 2005, figures were stated under UK Generally Accepted Accounting Principles (GAAP). Recent figures stated under International Financial Reporting Standards (IFRS).