- Stock jumps 19% close to all-time high
- Unveils £400 million share buyback plan
- Operating margins jump 500 basis points
The accounting software space isn’t very exciting and is savagely competitive so the promise of improving profitability from Sage Group (SGE) has understandably got investors fired up. Shares in the business jumped 19%, their biggest one-day rally in eons.
The software supplier to small and medium-sized businesses reported a 21% rise in underlying operating profit for the fiscal year 2024 (to 30 September) as its strategic focus on cloud solutions and strategic acquisitions paid off.
‘The meaningful increase in full-year profit and revenue announced today has a cherry on top in the form of a large share buyback, underpinned by the group’s strong cash generation’, observed AJ Bell investment director Russ Mould.
‘The business is performing strongly thanks to greater uptake of its cloud-based products and the market will be encouraged to see the group making progress across all geographies.’
AI-POWERED GROWTH
Sage has also cleverly been deepening its partnership with Microsoft (MSFT:NASDAQ), knitting the US tech giant’s AI tools into its own Sage Copilot assistant and rolling it out to more customers.
Accounting involves lots of spreadsheets so you can see how AI might be useful when it comes to the more basic and repetitive administrative tasks of keeping these updated.
A key metric to watch is operating margins, which jumped last year from 14.4% to 19.4% although they remain far below the mid to high-20s of yesteryear.
Reclaiming those levels may no longer be feasible but today’s results do point to plenty of scope to boost profits faster than revenues, a compelling mix for investors.
Competition won’t get any easier down the line, while any economic slowdown would likely hit its small- and medium-sized enterprise customer base disproportionately.
‘Forward-looking organic growth guidance will shape investors’ reaction to the news [today’s results], with 9%-plus and improving profitability demonstrating no expectations for further deterioration to forward-looking trading’, said Megabuyte analyst Nathan Jackson, and with today’s hefty share buyback, for now at least, things are looking good for Sage.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Steven Frazer) and the editor (Ian Conway) own shares in AJ Bell.
