Acquisitions pay off for Sage
Wednesday 06 December 1995
Since its flotation in 1989 the shares have risen more than tenfold. They jumped a further 13 per cent to 312p yesterday on the back of a bullish end-of-year statement. Pre-tax profits for the year to September were up 57 per cent to pounds 22.4m, marginally ahead of expectations, but this alone did not explain the jump in the shares.
A key factor in Sage's success is that, once it secures a customer, it makes much more money from after-sales service than it does out of the original contract.
Yesterday's news that sales to new customers were up 20 per cent in the UK business and 24 per cent in the US means that more growth is on the way. Sage already has 161,000 support contracts and last year these operations accounted for pounds 48m of the group's pounds 102m sales.
The other part of the Sage model that is working nicely is its approach to acquisitions. Sage's model is to start overseas expansion with a small acquisition which it then knocks into shape.
Saari, the French group that was acquired last year, is a classic example. It contributed pounds 3m in the year and its margins have already been improved from 7 to 11 per cent with more to come. Similar improvements are hoped for at Sybel, the other French business acquired last month.
There are potential dangers. One is a downturn in new customer contracts, which would have a knock-on effect on support revenue.
Another is that of a larger competitor moving into Sage's niche, although the company's brand name and distribution agreements represent high barriers to entry.
UBS is forecasting profits of pounds 30.4m this year, which puts the shares on a forward rating of 17.
That seems high, but set against exciting prospects it is not too demanding. Good value.
Feat of engineering: Incredible photographs show construction beneath New York's Second Avenue
Charles Saatchi accepts caution for assault over incident in Scott’s restaurant when he put his hands on throat of wife Nigella Lawson
Special Report: US troops are stationed in Japan to protect the nation. But to sex workers in Okinawa, they bring fear, not security
Police examine photographs of Charles Saatchi with hand on Nigella Lawson's throat
Iran to send 4,000 troops to aid President Assad forces in Syria
- 1 Breaking the Silence: In the reality of occupation, there are no Palestinian civilians – only potential terrorists
- 2 Charles Saatchi accepts caution for assault over incident in Scott’s restaurant when he put his hands on throat of wife Nigella Lawson
- 3 Anatomy of a waiter: Service staff spill the secrets of their trade
- 4 Exclusive: Cristiano Ronaldo advised to stay at Real Madrid for another 18 months before making possible switch to Manchester United
- 5 Iran to send 4,000 troops to aid President Assad forces in Syria
iJobs Money & Business
£20,000 - £45,000 OTE: Co-Venture: Working for this company will give you a ch...
Up to £80,000 PA Plus Benefits: Legal & General: An exciting opportunity for a...
£20 - £22 per hour: Orgtel: Documentation Assistant - London - Banking - £20 -...
£550 - £650 per day: Orgtel: Test Manager, London, Investment Banking, £550-65...