Just having a look at the technical position underlying the fall in Sage's share price - considering the recent RNS' and the declared short positions. There are no declared short positions greater than 0.5% - so the hedge funds are not (to any notifiable extent) selling Sage short. Aviva have declared that they have lent 0.12% of stock - presumably to Evil Knieval to short. Other institutions are holding their stock.
So the sell-side looks pretty weak and very vulnerable - should buyers look to take advantage of the current price on offer. Also, any seller short of shares will at some point need to buy back in and return the shares borrowed.
I'm thus taking the opportunity to get on the other side of Evil's position before he un-winds. in a tight market for Sage stock (which is the norm) the share price can only go one way.
ice of Mr Evil Knievil to generate some liquidity in Sage. It's a damn difficult share to jump onto, particularly if you're a value investor, as it always looks so expensive. This is due to its 'economic moat' - its strong position in the market - reflected in the 16% Return on Capital, 27% Operating Profit Margin of 27%. At the current 690p share price you get a nice 2.2% yield (based on historic paid dividends).
Hilarious Evils' mention of Microsoft as a competitor - Microsoft Money was no longer sold or supported as an accounting package back in 2009 - see https://en.wikipedia.org/wiki/Microsoft_Money
Microsoft is a strategic partner of Sage and they have a global technology agreement involving Azure and Office 365 cloud platform integration.
I don't think Mr Evil has done his homework on this one.
"I offer a titchy bit more on Sage (LON:SGE) there is a long way to go. But the fundamental problem is that SGEs software, which has been such a walloping success over the years, now has competition from Microsoft, Xero and Intuit. Accountants tend to be loyal to the devil they know but .
Tangible net liabilities are minus £1 billion and the capitalisation is £8 billion. Thats a big gap."
This is one of the comments, how widely representative it is I don't know :-
John Toon 6 months ago
For a review like this to come up with a result that reflects the exact opposite of what is happening in the market is pretty worrying!
Sage were very much late to the cloud party and their product is way behind the other two previously mentioned. It might be easy to set up but the world has moved on from direct bank feeds and its all about increased automation and integration with other 3rd party apps.
"Sage will find it challenging to meet its full-year targets, reckon analysts at Deutsche Bank, after a weak first quarter and growing competition from the likes of Quickbooks and Xero.
DB, which maintained its 'hold' rating and 740p target, said organic revenue growth of 6.3%, with 7% growth in recurring revenue, was due to "sales execution issues" and subscription growth slowed to 26% from 30% the prior year.
Management, which blamed the shortfall on a training initiative across the sales force which cost around two weeks of lost productivity, reiterated full-year guidance of "around 8% organic and around 27.5% organic operating margin" but said the first half would be closer to 7%, with flat margins year-on-year, which analysts said left the second half "looking particularly challenging".
Estimating the impact of the Intacct and Fairsail acquisitions, along with the US Payments divestment, the analysts add around two percentage points to the top line versus last year's reporting metric, on which Sage managed 5.9%, therefore, organic growth has actually declined by around 1.5pp on an 'apples to apples' basis.
With little detail given by management around Sage One, other than to say that the focus remains more toward ARR than subscriptions, the analysts felt this suggested that recent efforts to increase pricing to more reasonable levels are constraining subscription growth/driving churn, in line with the experience in 2H17."
Quarterly report to 31.12.17 sounds good but due to perversity of the markets they had expected better. See; https://www.investegate.co.uk/sage-group-plc--sge-/rns/q1-trading-update/201801240700057273C/
It's the subtle sting in the tail for a company deriving a lot of profit from across the pond and Europe "Sterling has strengthened against all major currencies except the Euro in our operating territories, leading to exchange rate headwinds, particularly in the translation of the US Dollar. "
"In keeping with the accounting profession it serves, the rise in shares at software company LSE:SGE:Sage has been steady and unassuming. But when you consider we're talking about a journey that began in 2012, when the shares stood at a mere 254p, ..."
"LSE:SGE:Sage's weaker-than-expected start to the financial year had the City boo-boys patting themselves on the back and the share price below 600p for the first time since June. But the accountancy software giant had already warned that growth ..."
"The Questor Column:
Sage investment? Not when shares trade at 18 times forecast earnings:
Last months Sage Summit at Londons ExCel centre had a lot to live up to. When the FTSE 100 software company put on its business conference for distribution partrillioners, customers and fun-loving accountants in Chicago last summer, Sir Richard Branson and Gwyneth Paltrow put in an appearance. Sage has made good progress in migrating its existing customers on to more lucrative subscription contracts and is simplifying the business to cut cost. Even if it stagnates, Sage has a lot of appeal, including 80% recurring revenues. Its ratio of net debt to earnings is also the lowest it has been for three years, leaving scope for £150 million in share buybacks from this year on.
The niggle is that its shares are trading at 18 times next years forecast earnings, suggesting it is being viewed as a growth stock just as there are signs of declining momentum. If only its sales figures were as impressive as some of its get-togethers. There is currently better value elsewhere.
marcher thanks for the link. Quite interesting to compare.
Whatit does imply though is that Xero is a much more comprehensive package.
There seems to be no clear price comparison as the starting prices are meaningless unless you specify the time / what features are included in the price etc.
Seems inconclusive, if not more favourably weighted toward Xero.
I read the article very carefully.
Apart from general stuff about the overall market having gone up, and that therefore it will come back down again at some point, and general stuff showing how clever the writer is about interpreting patterns in charts, what the article seems to say about Sage specifically is that it might go up, or it might go down, but that it might stay the same for a while.
"A lesson in trading from SageLSE:SGE:Sage has been one of my favourite shares and now the chart pattern could be sending a warning that what happened to this share could also take place in the general market as measured by the FTSE 100. It is ..."
Hi GI, your link referred to an article from April 2016 and compared Sage 50 with Xero.
In the meantime Sage have upped their game with SageOne which is also cloud based.
Here is a more recent comparison:-
Looking at some of the numbers over the last 5 years, I wonder if anyone here can explain the risks associated with them :-
From September 2012 to September 2016 respectively :-
Revenue rose from £1.34Bn to £1.57Bn - a rise of 17%
during that time the pre-tax profit has fallen from £344M to £300M -- a fall 13%
now the scary part :-
The borrowings have jumped from £200M to £534M - a rise of 167%
OK it's still less than 2 years profits so deemed comfortable, but what has happened to all that money? -- It certainly hasn't increased profits.
operating cash flow has remained fairly constant over the 5 year period, but last year (to Sep16) the figures changed dramatically :-
Operating Cash Flow £284M
Net Cash Flow from investing activities (£45M)
Net Cash Flow from financing activities (£278M) - this is a big negative number ????
Resulting in a net cash outflow of (£39M)
Perhaps others here have some explanations or can shed some light on this,
In essence the business does not appear to have grown profitability in the face of rising revenue and borrowings. The dividend grew by 40% though.
Are there any on this board who can vouch for the software's performance?
I guess I asked back in June last year - this was the content, but no response so far :-
"""Any views on threats from Xero or other software packages (Quickbooks etc). Having read a few forums, it appears most users complain bitterly that the Sage software support is almost non-existent or of such poor quality, it seems that way. They also seem to be laughing at the concept of Sage Live (or Life) as an online solution, since non of their existing packages allow data transfer and there is a very big concern about Sage's lax approach to security of passwords. Vital I guess for a cloud based solution.
Many of the obviously disgruntled users comment that the only two things Sage are good at is marketing and billing -- harsh I suppose and possibly a minority - I don't know.
Any users here that can comment on these observations (I must stress, not my own views)."""
"" Dido Harding CEO of TalkTalk was embarrassingly inept in handling the reporting their data breach incident last year - but long-term damage has been minimal and the share price recovered.""
M - maybe it just takes time for the impact to be registered. TalkTalk shares are languishing at their lows now - 153p against a high of 272 - a 44% drop.
This drop may be for other reasons, but if not, the impact on Sage could be telling.
Sage has hit its numbers again with this excellent set of results (full year to 30 Sept 16), the published highlights being:
Achieved organic revenue growth of 6.1% (FY15: 6.0%) and the fastest rate of recurring revenue growth for a decade of 10.4% (FY15: 9.0%);
Software subscription growth of 32.3% (FY15: 28.9%), in line with the planned transition and planned decline in SSRS revenue of 8.5% (FY15: decline of 0.7%);
Customers embracing closer subscription relationships with 46% increase in software subscription contracts to just over one million (FY15: 690,000) and an increase in retention rates to 86% (FY15: 84%);
Accelerating revenue growth in Europe, Africa and Brazil; slower performance in Asia (one off regulatory change in the prior year); growth in North America consistent with last year;
Underlying cash conversion at 100%, supporting free cash flow of £254m and the 8% increase in full year dividend to 14.15p.
Sage is managing to maintain its performance whilst undertaking a major transformation:
>> Firstly, the conversion to Software-as-a-Service (SAAS) subscription pricing is continuing; and
>> Secondly, the new strategy for growth is reshaping the business quite dramatically.
SAAS pricing: Is very beneficial, customers like it and if fosters increased loyalty/reduces churn but at the cost of a short/medium term hit to revenue recognition. About 70% of revenue is now recurring and the growth rate is accelerating:
2013 6%, 2014 7%, 2015 9%, 2016 - 10.4%
So, at some point and it cannot be too far off this will drive up sales from its current 6% organic growth rate.
New growth strategy: CEO Stephen Kelly is making dramatic changes in pursuit of sales growth with 72% of the top leadership changed in the year. In Sales and Marketing, 300 staff left and 200 recruited with new skills in digital marketing.
The new strategy is a move away from being federated countryspecific with many products to fewer global cloud-based products aimed at specific market segments Start-up, Scale-up and Enterprise. The new entry-level mobile and revamped cloud-based products look attractive. To support this fewer regional language-specific centers will cover the globe. The cost savings generated, £51m p.a. so far, will be ploughed back into marketing and sales to target new customer acquisition.
My opinion: I like Sages existing attributes it has a strong economic moat, reflected in attractive margins and excellent cash conversion. It is the only global player in the SME accounting product market and so has the knowledge and expertise to cater to local tax compliance requirements. The new growth strategy makes sense with a new focus on start-ups and the opportunity to dominate this niche globally.
Whilst, its still early days and it is not yet reflected in the top-line numbers there is enough in these results to suggest that the new strategy is beginning to work.
"Today's Italian referendum 'No' result was greeted negatively by early markets, as was widely expected. As I write, stockmarkets are recovering from these early setbacks.When short-term trading, I like to observe the action over the following day ..."
The first in a series of shares recommended by Questor features Sage
Welcome to the first of Questors new Wednesday columns, in which our share selections are prompted by where the professional investors we most admire are putting their clients savings. But the follow the money idea goes further than merely aping the investment decisions of some prominent portfolio managers.
Read our introduction to the revamped Questor column here
The professionals whose actions we believe are most worthy of private investors attention are those who invest their own money in the funds they run and in the asset management firms they work for. This gives them the best possible incentive for making decisions that will enrich their clients.
Many fund managers, unfortunately, are more motivated to make their funds as large as possible, as their employers income is normally a percentage of fund value.
There is a final element to the follow the money method: we will be particularly inclined to invest in companies whose directors have large shareholdings.
Many of the portfolio managers we respect share a similar approach to investing, which is broadly along the lines of Warren Buffetts. They are long-term holders of shares, and pay great attention to the quality of the management teams concerned. They look for effective and sustainable barriers to competition Mr Buffetts famous economic moats.
When it comes to financial performance, we follow the advice of those professionals who say the most important measures are return on capital, the ability to deliver profits in hard cash rather than as a notional figure that derives from complex accounting techniques, and low debt.
The best growth comes from those companies that can produce these high cashflows from their assets and then reinvest that money in new assets at similar rates of return. Any business that can do this reliably over the long term will deliver a strong compounding effect and should reward shareholders handsomely.
The only instance where such a company will not deliver for shareholders is when the shares were bought at too high a price. As a valuation yardstick, we will look at the much-loved price-earnings (p/e) ratio.
Among the professional investors who focus on return on capital, cash generation and low debt are Terry Smith of Fundsmith, Nick Train of Lindsell Train, Sebastian Lyon of Troy Asset Management and Hugh Yarrow of Evenlode.
Mr Smith founded Fundsmith and has a large stake in his flagship Fundsmith Equity fund, while Mr Train co-founded the firm he works for and has a multi-million-pound holding in the Finsbury Growth & Income investment trust, which he manages.
Mr Lyon has a similarly large stake in his Personal Assets investment trust. The family of Hugh Yarrow, manager of the Evenlode Income fund, owns a large slice of the management company.
All can therefore be said to have significant skin in the game and all four of the portfolios mentioned own a stake in todays tipped share, Sage Group.
Sage share price graph
The software company has modest debts and good return on capital of 18pc (Mr Smith looks for figures in the mid-teens or higher). Cash conversion which reflects the firms ability to produce real profits unadulterated by accounting trickery is more than 100pc.
The firm has a record of investing the money it produces in bolt-on acquisitions that allow the group to show decent growth profits on a per-share basis have grown by an average of 7pc over the past five years, according to Morningstar, the investment analyst, while the dividend has grown by 9.5pc annually over the same period.
While Morningstar has rated Sages economic moat as narrow it pointed out that the companys brand is well-recognised throughout Europe . It added that Sage had created a great deal of trust in the small business community, with more than 50pc of sales generated by
Sage actually closed up on the day of their data breach report!
Sage's share price has shown remarkable resilience closing up 0.5p after opening down 34p (4.6%) in response to news of their data breach. Clearly this is early days and there will undoubtedly be more detail to be revealed - and one would envisage that the sp would suffer a dip just in view of the uncertainty and potential reputational damage.
But no, Mr Market has shrugged-off this incident and is priced Sage a tad higher than the previous close. I'm both astonished that there isn't a sp fall and as a holder very impressed.
There is a saying within the cyber security community 'that there are those businesses that have been hacked - and those that don't know that they have been hacked!' These announcements are unfortunately becoming a fact of business life, and destined to increase as mandatory reporting becomes the legal requirement.
Whilst, the news that Sage have suffered an internal breach of security is very disappointing it is unlikely this will cause a material cost to the business. Dido Harding CEO of TalkTalk was embarrassingly inept in handling the reporting their data breach incident last year - but long-term damage has been minimal and the share price recovered.
It will be interesting to watch how well Sage respond and manage the PR. It is these, what I call, 'acid test' moments that provide a great insight into how good the management team of a business is. A serious challenge such as this, if well handled, can reinforce confidence that you can trust them with your personal investment in their business.
Another jump in the sp today up 15p to 716p as I post.
I'm wondering whether this is market reaction to the Sage Summit in Chicago. It seems that CEO Stephen Kelly has made a step-change in the pace of product innovation and is making a good job show-casing them in Chicago. That, together with the new partnerships and market positioning of Sage 'championing entrepreneurs' is starting to change perceptions. I like the bold ambition of Stephen Kelly and, whilst it's still early days, I think it'll come through in the numbers.
If you have seen anything else that might be driving this sp rise - please post it up.
If you hate seeing buys reported as sells etc!!!!!!
Has already been sent to Martin Lewis, Daily Mail, Moneyweek & Watchdog.
New chancellor, shaddow chancellor & lots of others inc Stock Exchange aim committee.
If you follow tweeters etc, send it to them please!
If this petition doesnt reach 10,000; then imo we might as well have not bothered as it will almost certainly be filed B1N; @ 10,000 the government should respond.
So If you havent yet signed or indeed have but havent passed it on to others, then nows the time to do so.
makes you wonder why Terry Smith as this in his portfolio when considering his mantra of only investing in companies with 6% Free cash flow yield.
Sage is well short of this.
Any views on threats from Xero or other software packages (Quickbooks etc). Having read a few forums, it appears most users complain bitterly that the Sage software support is almost non-existent or of such poor quality, it seems that way. They also seem to be laughing at the concept of Sage Live (or Life) as an online solution, since non of their existing packages allow data transfer and there is a very big concern about Sage's lax approach to security of passwords. Vital I guess for a cloud based solution.
Many of the obviously disgruntled users comment that the only two things Sage are good at is marketing and billing -- harsh I suppose and possibly a minority - I don't know.
Any users here that can comment on these observations (I must stress, not my own views).
Panmure's note from this morning: Following our trip to Salesforce World Tour (19 May) we decided to dig some more into the marketing efforts around Sage Live. Spending time on the Sage marketplace (investor think of it as Sages appstore) we note what appears to us to be a record number of new additions of independent software vendors... our view is that Sage only has to tap into a fraction of the Salesforce pixie dust (200,000 customers) to have a large success on its hands... if there is upside to our FY/2016E estimates (ended 31 September) it is unlikely to be from Sage Live, but we did not expected that anyway. The valuation remains on the high side on PE 23.9x, 16.0x EV/EBITDA with 2.3% div and 2% FCF yield. Pulled it from Research Tree
Read Panmure Gordon & Co's note on SAGE GROUP PLC THE (SGE), out this morning, by visitinghttps://www.research-tree.com/company/GB00B8C3BL03
"Sage is in the throes of a sleeves-rolled up restructuring the razzamataz of the we are doing this has passed now it is the workaday execution part; CFO Steve Hares stature has visibly grown. This kind of progress is never in a straight line; customers, like cats, can be difficult to herd and driving behavioural change in the 13,000 FTE organisation is never easy. However, from yesterdays results and subsequent analyst meeting we are encouraged by: (i) US progress YTD (traction looks far better and they benefit from currency tailwind) (ii) deep internal change with c 71 refresh in the top one 100 staff. While this has..."
Important message from the Financial Conduct Authority:
Posting inside information that is not public knowledge, or information that is false or misleading, may constitute market abuse.
This could lead to an unlimited fine and up to seven years in prison.
If you have any information, concerns or queries about market abuse, click here.
The content of the messages posted represents the opinions of the author, and does not represent the opinions of Interactive Investor Trading Limited or its affiliates and has not been approved or issued by Interactive Investor Trading Limited.
You should be aware that the other participants of the above discussion group are strangers to you and may make statements which may be misleading, deceptive or wrong.
Please remember that the value of investments or income from them may go down as well as up and that the past performance of an investment is not a guide to its performance in the future.
The discussion boards on this site are intended to be an information sharing forum and is not intended to address your particular requirements.
Whilst information provided on them can help with your investment research you need to consider carefully whether you should make (or refraining from making) investment or other decisions based on what you see without doing further research on investments you are interested in.
Participating in this forum cannot be a substitute for obtaining advice from an appropriate expert independent adviser who takes into account your circumstances and specific investment needs in selected investments that are appropriate for you.