Results Sage Image credit Pixabay/GeraltDespite announcing some strong first-half results this week, Sage shares dipped more than 5% as the market reacted to its forecast for the full year. Underlying total revenue increased by 10% to £1,152m. Underlying operating profit increased by 18% to £254m, an increase of 1.6%. Free Cash flow was 240 million.

ARR rose by 11% to £2,253 million. Importantly, the renewal rate rose by 1% to 102%.  Sage cited expansion in current customers and a good retention key to this figure, but it did not split them out.

Steve Hare, CEO, Sage
Steve Hare, CEO, Sage

Steve Hare, Chief Executive Officer, commented, “Sage performed well in the first half of the year, delivering broad-based revenue growth and significant margin expansion. Demand for our solutions remains robust, with small and mid-sized businesses continuing to trust Sage to automate their accounting, HR and payroll workflows.

“We are resolutely focused on innovation, as both a source of near-term competitive advantage and a foundation for our long-term success. We continue to introduce new AI-powered products and services that deliver enhanced productivity and insights, driving value for both existing and new customers.

“As we look forward, despite the ongoing macroeconomic uncertainty, I am confident that Sage’s proven strategy, underpinned by continued investment, will enable us to deliver further efficient growth.”

Did the market expect more?

Looking forward, Sage revealed, “Looking ahead, we expect organic total revenue growth for full-year FY24 to be broadly in line with the first half. We continue to expect operating margins to trend upwards in FY24 and beyond as we focus on efficiently scaling the Group.”

The sharp fall in share price might be traced back to the forecast Sage made during its full-year 2023 results. Then, it indicated that the FY 2024 growth would be broadly in line with that in 2023. The shares rose sharply as a result of that. However, Sage appears to be predicting growth of only 11% rather than 12%. The share price dropped to slightly above that of 6 months ago.

What is happening, and can Sage overachieve

Since Hare took over as CEO, he has steadied the global software company. With Aaron Harris as CTO, it has reinvigorated its portfolio. Emphasising cloud-native solutions that are now contributing more and more to the revenue stream. Sage Business Cloud revenue increased by 18% to £915m, of which cloud-native solutions contributed £353 million, up 25%.

Importantly, as the business evolves to subscription-only, revenues from subscription-based solutions rose 14% to £937 million. This contributed 81% of total revenues.

The firm is investing in new solutions and developing its AI capabilities. Recent launches included Sage Copilot as well as solution suites Sage for Accountants and Sage for Small Business.

In terms of regional growth, North America is still outstripping UK growth, with the US getting the highest growth at 14%, mainly from Sage Intacct. In Europe, growth is improving, rising to 6%, which is much greater than has been seen in previous years.

Enterprise Times: What does this mean

The sharp drop in share price is probably not a cause for concern. The underlying trend is still upward. It did not fall below the November 2023 price level. Sage continues its march to a cloud native provider, though this will take some time. As its existing software is trusted and still used by many organisations that have no intention of changing.

It continues to evolve and improve its portfolio, which keeps it competitive and makes investments to ensure that gaps are filled. They include the recent acquisition of Bridgetown Software to strengthen its presence in the cloud-native construction software market.

Did the market expect slightly higher growth? Probably yes, but Hare has rarely overpromised. And a slight reduction in growth is as much the economic climate as any failings by Sage. With the upcoming elections in the US and the UK, it is arguably to be expected. In November, Sage might have been hopeful of a faster economic recovery. Sage may yet surprise analysts and overachieve at the end of its full-year, leading to another rise in share price. The second half has yet to be played out!

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