Sage Group PLC (SGE) is a Newcastle Upon Tyne, United Kingdom-based multinational enterprise software company. The group is the global market leader for technology that provides integrated accounting, payroll and payments solutions for businesses of any size, complexity and industry. The group operates in 23 countries across the world to serve over three million customers. The company’s operations are differentiated in three operating segments: North America, Northern Europe, Central and Southern Europe, and International. Steve Hare is the Chief Executive Officer of the group. The group is a constituent of the FTSE 100 index.
Key Financial Highlights (H1 FY 2019, in £m)
(Source: Company Filings)
The group reported underlying and statutory revenue of £957m in the first half of FY 2019, representing an increase of 6% on statutory basis and 5% on underlying basis as compared to the corresponding period of the last year. Driven by the 28% increase in software subscription revenue, recurring revenue increased by 10% to £779m. As compared to the growth in underlying revenue in the first quarter, the second quarter’s growth was lower. Reported operating profit surged by 13 per cent to £210 million. In H1 of FY19, the company’s underlying operating profit dipped by 3 per cent to £218 million. Net profit on statutory basis rose by 14% to £154m but underlying net profit (profit after tax) contracted by 2 per cent to £152m. While statutory basic earnings per share increased by 14% to 14.19p, underlying basic earnings per share decreased by 2% to 13.93p, in line with the underlying operating profit of the business. The group stated underlying cash conversion of 151 per cent. Underlying cash flows from operating activities stood at £330m. In H1 of FY2019, the company generated free cash flow (FCF) of £257m and net debt stood at £448m as at 31 March 2019, representing net debt to EBITDA ratio of 0.8x. In H1 FY19, the return on capital employed stood at 20.7 per cent against 20.6 per cent reported last year in H1 FY18.
Share Price Commentary
Daily Chart as at May-17-19, before the market closed (Source: Thomson Reuters)
On 17rd May 2019, at the time of writing (before the market closed, GMT 2:40 pm), SGE shares were trading at GBX 733.40, down by 0.62 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 750.40/GBX 491.30. On the valuation front, the stock was trading at a trailing twelve months PE multiple of 23.2x as compared to the industry median of 11.3x. The company’s stock beta was 1.02, reflecting roughly the same volatility as compared to the benchmark index. Total outstanding market capitalisation was around £8.16 billion with a dividend yield of 2.23 per cent.
Driven by software subscription, the company reported strong growth in high-quality recurring revenue, with annualised recurring revenue (ARR) growth of 10.2% to £1,545m. Recurring revenue now represents 83% of total revenue, representing a continued strength in the company’s ability to generate recurring revenue. The company has provided a guidance of 8-9% growth in organic recurring revenue, and the company expects to be at the top end or slightly exceed the guided range. Forecast for revenue in the financial year 2019 was not changed and organic operating profit margin guidance was kept at 23-25%.
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