Shareholders count the cost of moving to the cloud at enterprise software company Sage

– Migration to the cloud continues to weigh on operating margins

– Share price where it was in July 2016

– 2.7% revenue yield and 5% organic growth unlikely to attract investors

enterprise software firm Wise (EMS) continues to find itself trapped in an investment no-man’s land. Is it growth, is it income… no, it’s Sage, to use the quote from 1966 Superman musical… ‘is it a bird, is it a plane… no it’s Superman.’

The bombed-out Broadway show. Sage’s actions didn’t, but it hasn’t done much for six years now.

Sage is one of the UK’s largest software companies, providing accounting, HR and other business applications to small and medium sized businesses around the world.

The company’s strategy in recent years has been to move away from license sales and professional services revenue and grow cloud-based group subscription revenue.

Today’s half-year results show organic revenue increased 5% to £924m, of which recurring revenue increased 8% to £866m. That puts it on track for annual recurring revenue of £1.78bn, up 10% year-on-year, with subscription penetration six percentage points above 74%.


Progress, but at what cost? Cloud investments continue to weigh on earnings, with organic operating margins down to 19.9% ​​despite overall operating profit up 4% to £184m. The full-year extrapolation to September 30, 2022 implies £368m, slightly below last year’s £373m.

In 2018, operating profit was £427m on a 23.1% margin, and not too long ago Sage was boasting 27% margins and ambitious talk of reaching 30 %.

In the meantime, Stifel analysts expect an annual dividend of 18.2 pence per share, up 2.8%, after today’s proposed 6.3 pence payout for the first half.

This would imply a return of 2.7% based on the current share price of 666 pence, which does not bode well for growth investors or income seekers.


Date of issue: May 13, 2022