Morningstar | Sage Releases Brief Q1 Trading Update; More Positive Evidence Needed; Shares Fairly Valued. See Updated Analyst Note from 17 Jan 2019
Sage released its brief first-quarter trading update that indicated a good start to the fiscal year and strong comparative performance from a year ago. Still, an easy comparison helped flatter the quarter’s performance, and the firm reiterated its full-year guidance that was given at the end of fiscal 2018. Our fair value estimate of GBX 615 remains unchanged for this narrow economic moat firm. We remain cautious over the speed at which the firm can make the transition to a full-fledged software-as-a-service provider given prior underperformance (resulted in the ousting of CEO Steven Kelly in 2018) and the new yet-to-be-tested management team instructed to lead this dramatic multiyear change. As such, we see the firm as fairly valued and believe investors should seek a wider margin of safety before committing capital to the name.For the first quarter, group organic revenue grew by 7.6% year over year to GBP 465 million. Overall revenue growth was supported by products that were either included in, or will be migrated to, Sage Business Cloud. Sage Business Cloud revenue improved 9.3% to GBP 380 million, while products with no current path to Sage’s Business Cloud only eked out slight growth of 0.6% to GBP 85 million. The firm remains committed to its cloud transition as evidenced by the Sage Business Cloud migration and growth rates. Nevertheless, we have a cautious view on the success of such efforts and want to see healthy ongoing adoption of Sage’s Business Cloud to get more comfort with the long-term success of the extensive user migration. Previous inconsistent execution from the firm is still a concern, and Sage’s turnaround efforts need to start bearing fruit before we change our long-term view on the firm.
Sage Group is a technology provider that assists to manage businesses of all sizes. Co. provides a suite of cloud business management solutions and services including accounting, financials, enterprise management, people, payroll, payments and banking, as well as marketplace apps that can be provisioned to match the exact needs of any business. Co. has three reportable segments in which it operates, being Northern Europe (the U.K. and Ireland), Central and Southern Europe (Germany, Switzerland, Poland, France and Portugal) and NorthAmerica (the U.S., Canada and North America Intacct).
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
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