Enterprise software supplier must win back investor confidence quickly

SAGE (SGE) 597.8p

Loss to date: 23.9%

Original entry point: Buy at 785.5p, 21 December 2017

Sage’s (SGE) out of the blue growth shock on 13 April caught the whole market on the hop and it has caused huge damage to investors.

The shares may have fallen barely more than 8% on the day (recovering from early session declines of 20%-odd) but the stock has continued to be weak since.

The company blames sluggish recurring revenue sales and software subscriptions, with traditional licenses and services seemingly growing at their expense.

Cynics might argue how well Sage’s subscription-focused strategy is really working. However, it seems at least in part the problems have been self-inflicted judging by comments of ‘inconsistent operation execution’.

That’s two quarters running when organic revenue has failed to hit 8% targets leaving a lot to do even to catch up to lowered 7% growth rates for the full year. At least operating profit margins targets have been held at 27.5%.

The quicker Sage can remedy the situation, presuming it can, the better. Speeding up organic growth rates was a fundamental premise of our Top Picks for 2018 story.

Sage has been putting up very decent returns for shareholders for years and that suggests management deserve the benefit of the doubt.


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