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FTSE 100 cloud-based monetary instruments supplier Sage Group (LSE: SGE) posted one other set of broadly sturdy outcomes on 15 Might.
Its H1 2025 figures confirmed complete income enhance 9% yr on yr to £1.242m. Working revenue rose 10% to £1.203bn, with revenue after tax rising 15% to £206m.
Earnings earlier than curiosity, taxes, depreciation, and amortisation jumped 14% to £334m, whereas primary earnings per share elevated 15% to twenty.8p.
Because of this, the agency boosted its dividend by 7% to 7.45p a share. It additionally prolonged its ongoing share buyback programme by as much as £200m – these are typically supportive of share value beneficial properties.
It forecasts complete income development for this yr to be 9% or above.
The one actual damaging component within the numbers was an undershooting of analysts’ forecasts for North American development. These have been for 13%, whereas the accounting, HR and payroll options supplier achieved 11%.
That stated, consensus analysts’ projections are that its earnings will enhance by 12.8% a yr to the tip of 2027. Progress on this space ought to lead finally result in a rising share value and dividends.
So what am I ready for?
Simply because I believe a agency appears good doesn’t imply I’m prepared to purchase it at any value. That is the issue I’ve with Sage.
I lived by the now largely forgotten (however not by me) dotcom bubble of the late Nineties. Again then, many corporations within the then-much-hyped rising web house noticed their share costs pushed up by the upper valuations of the sector’s leaders.
I believe the identical could apply to the costs of some corporations within the now-much-hyped tech and synthetic intelligence sector.
Extra particularly, Sage’s 34.5 price-to-earnings ratio is backside of its worldwide peer group, which averages 48.7. These corporations are Oracle at 36.2, Salesforce at 43.7, SAP at 54.1, and Intuit at 60.8.
So, Sage appears undervalued in comparison with them on this measure.
The identical is true of its 4.9 price-to-sales ratio – additionally backside of the group – towards its friends’ common of 8.7.
Crucially although, a reduced money circulation (DCF) evaluation – fully unbiased of different corporations’ valuations – paints a unique image. This pinpoints the place any agency’s share value needs to be, primarily based on future money circulation forecasts for the underlying enterprise.
In Sage’s case, the DCF exhibits its shares are 38% overvalued at their present value of £12.52.
Due to this fact, their honest worth needs to be £9.07.
My verdict
I don’t doubt that Sage is an efficient agency and that it’ll continue to grow. It might simply be that its present share value displays development that has not occurred but. And the danger right here is that this will likely undershoot these expectations, given the extreme competitors within the sector.
It might additionally happen from a continuation within the extra risky and unsure macroeconomic atmosphere highlighted by Sage in its H1 outcomes. Its lower-than-expected development in North America in H1 could also be an indication of issues to come back in that regard.
In essence, given its substantial overvaluation for my part, I cannot purchase the inventory.
