AUS
NZ
UK
CA
USA
IND
Summary
- Sage Group Plc has reported organic total revenue growth of 3.7% during FY20.
- The Company expects to show a 3% drop in organic operating margin in FY21.
- Sage cloud-based organic revenue has seen a significant rise of 30% during FY20.
- The Company has software subscription penetration of 65% during FY20.
Sage Group Plc (LON:SGE) is the LSE listed technology stock. The Company is a well-established technology player having its focus on cloud-based products and services. Shares of SGE were down by close to 0.69% from the last closing price (as on 24 November 2020, before the market close at 08:22 AM GMT).
Sage Group Plc is the FTSE 100 listed Company, which provides business software and solutions. The Company has a strong presence across various geographies like North America, Northern Europe, Central Europe, France, Iberia, Africa, the Middle East, Asia and Latin America. The focus of the Company is to provide accounting service for mid-scale and small-scale companies.
(Source: Company presentation)
Cloud Computing industry overview
The global cloud services market is at an evolving phase, and there are several factors which can increase the demand. The key benefit would be that it reduces cost elements by around 35% when it is compared with physical storage. The cloud services market can be bifurcated into various business segments like infrastructure as a service (IaaS), software as a service (SaaS), platform as a service (PaaS), business process as a service (BPaaS), cloud advertisement services, and cloud management & security services.
The restrictions caused by Covid-19 pandemic have shot up the demand for cloud-based software and services due to closure of offices, schools, and colleges. Most of the big global companies are focusing on providing the best cost-effective digital solutions across each industry. The cloud market in verticals such as IT, telecom, BFSI, and media and entertainment, has witnessed a positive impact due to the work from the home initiative. Students and Employees are using cloud collaboration platforms for communicating and consuming OTT streaming services as they are more often working from home.
FY20 results (ended 30 September 2020) as reported on 20 November 2020
(Source: Company result)
- The Company has demonstrated organic total revenue growth of 3.7% from £1,705 million in FY19 to £1,768 million in FY20 ended on 30 September 2020. The recurring organic revenues have seen year-on-year growth of 8.5% for FY20 contributing around 90% of total revenues.
- The organic operating profit declined by 3.7% to £391 million during FY20. The underlying profit margin of the Company stood at 21.6% for FY20.
- Regarding the financial position, the Company had a liquidity headroom of £1.2 billion as of 30 September 2020. The net debt to EBITDA ratio stood at 0.3x. The Company has sustained strong underlying cash conversion of 123% as of 30 September 2020 reflecting continued growth in software subscription and sustained improvements in working capital, with success in the collection of receivables.
- From a strategic execution perspective, the Company has software subscription penetration of 65% and Sage Business Cloud penetration of 61% during FY20.
Segmental Revenue
(Source: Company result)
- The Future Sage Business Cloud Opportunity have performed well, with recurring revenue growth of 10% and total revenue growth of 5%. Cloud-native solutions have demonstrated recurring revenue growth of 29%, with Sage Intacct showing recurring revenue growth of 26%.
- The Company has witnessed good growth in cloud-connected recurring revenue of 33% to £636 million reflects momentum from the migration of existing customers predominantly in North America and Northern Europe, as well as further growth from new customers acquired in the year.
(Source: Company result)
Organic recurring revenue has increased by 8% to £1,592 million during FY20 driven by strong growth of 21% in software subscription revenue reflecting the Company's focus to migrate existing customers to subscription and Sage Business cloud.
Revenues by Geography
North America - North America region has demonstrated recurring revenue growth of 11% to £634 million and total revenue growth of 8% to £692 million during FY20. The Subscription penetration stood at 61%, an increase from 56% in the prior year, and Sage Business Cloud penetration was 71%, grew from 66% in the previous year, due to growth in cloud-native and cloud-connected solutions.
Northern Europe – The Northern Europe (UK & Ireland) segment has shown recurring revenue growth of 9% to £377 million in FY20 and total revenue growth of 6% to £395 million. The Subscription penetration has increased to 85% from 70% in FY19, and Sage Business Cloud penetration was 82% in FY20 from 67% in FY19 due to recent acquisitions of Auto Entry and CakeHR.
Central and Southern Europe – The Central and Southern Europe business segment has shown recurring revenue growth of 4% to £467 million while total revenue has declined by 2% to £544 million. The Subscription penetration reached 55% in FY20, and increased from 46% in FY19 primarily driven by growth in cloud-connected solutions.
International - International business segment has shown recurring revenue growth of 11% to £114 million, and total revenue remained flat at £137 million. Subscription penetration reached 62% witnessing an increase from 53% in FY19 and Sage Business Cloud penetration in the region was 14%.
Share Price Performance Analysis of Sage Group Plc
(Source: EODHD/Others, chart created by Kalkine group)
Shares of Sage Group Plclast traded at GBX 575.60 and were down by close to 0.69% against the previous closing price as on 24 November 2020, (before the market close at 08:22 AM GMT).SGE's 52-week High and Low were GBX 794.60 and GBX 515.60, respectively. Sage Group Plc had a market capitalization of around £7.43 billion.
Business Outlook
The Company has made it clear that it will continue to invest heavily in cloud-based platforms as most of the industries are seeking digital transformation in this challenging business environment. The Company has already witnessed a substantial shift as it focuses more on software as a service from the last two years. Sage will continue to change its business model as it is now changing its business model and focusing more on its subscription-based revenue rather than the licensing revenues.
The Company is expecting its organic recurring revenue growth ranging from 3% to 5% for FY21 and other revenues to witness a decline during FY21. The organic operating margin will see a drop of 3% in FY21 from the levels of FY20 due to the increased level of investments in cloud-based platforms. The Company is expecting margins to have uptrends post FY21 as the investments drive revenue growth and operational efficiencies.
