Investment Column: Taking a hint on Sage would be a wise move

St James's Place Capital; Renishaw

Our view: Buy

Share price: 243.5p (-5p)

Technology giants in the US have a certain cachet or mystique to their brands and operations. Their services are household names used on a daily basis by millions of consumers, many of whom identify closely with their products, whether they are provided by Apple, Google or Microsoft.

The UK's dominant tech players tend to have found more success in the business-to-business space and are little known to the consumer market. The lack of such a profile for the FTSE 100 stalwart Autonomy prompted it to sponsor Tottenham Hotspur's shirts.

Sage is in a similar mould. It helps businesses to manage their finances, people, customers and suppliers, and has been around for the best part of two decades. It is a big company that few people in the street will have heard of, with 6.2 million customers and 13,100 employees around the world. This is no reason to ignore the stock.

Paul Walker, the outgoing chief executive, yesterday updated the market, saying there was little in the way of surprises. Trading since the May interims has been in line with expectations and the trends, particularly in the third quarter, appear positive.

It's also worth noting Sage's growth in recurring subscriptions against one-off contracts. The former now account for about 65 per cent of total revenues and will be there even should the recovery crumble. Cash generation is strong, and net debt fell from £305m at the end of March to £280m three months later. This provides headroom for more M&A activity in the coming year. The management remains cautious over the uncertain economic conditions, but says that the company will meet full-year expectations.

There is an opportunity for profiting from Sage: as the market recovers as the group has lagged its peers since the last quarter of 2009. Jefferies puts its price at just 12.9 times forecast full-year earnings, a 40 per cent discount to rivals. Take the hint. Buy.

St James's Place Capital

Our view: Buy

Share price: 273.3 (+16.9p)

Given yesterday's results, perhaps it's no wonder that the Lloyds Banking Group performed a U-turn on its pledge to sell its near 60 per cent shareholding in St James's Place Capital. The specialist life insurer and fund manager's sales came in well ahead of the City's forecasts. Total new business was up 44 per cent in the first half, 46 per cent in the second quarter and there was a net inflow of £1.5bn of funds, bringing assets under management up to £22.4bn. The number of "partners" who sell for SJPC also improved by 3 per cent to 1,506.

The sales are reading across to earnings, too: pre-tax profits were up 82 per cent to £36.3m. SJPC is something of an oddity – its clientele are more upmarket than other life insurers, and salesmen are paid by commission on what they sell. Despite this, the company has steered clear of trouble with the Financial Services Authority.

Sales are only worth making if they are both profitable and compliant with the regulatory rulebook. SJPC appears to have managed to square that particular circle and, with Lloyds' backing, the issue of a stock overhang has evaporated. There's always a worry that Lloyds will seek to do something stupid – like interfering with what SJPC does. Big companies, and big banks, are sometimes like that. But, there doesn't appear to be any sign of that at the moment. At a 17 per cent discount to Panmure's estimate of the shares' 2010 embedded value, we say keep buying.


Our view: Hold

Share price: 823.5p (+13p)

The last time we looked at Renishaw things seemed to be looking up for the engineering group and it had just reversed the voluntary pay cuts introduced at the start of 2009.

Yesterday there were further signs that the turnaround is gathering strength when Renishaw issued full-year figures, posting a threefold rise in adjusted pre-tax profits. The news on the order book and the company's outlook statement were just as pleasing, suggesting continued strength in the months to come.

Ordinarily, such a performance and prospects would call for a buy, but the market has woken up to the group's potential. The stock is up around 50 per cent since the beginning of this year (when we said buy), and around 25 per cent since the beginning of June. It trades on a multiple of around 21 times forecast 2011 earnings. So, we fear that some investors may seek to book profits in the short term.

Nonetheless, we are still backers of the company. We would confidently recommend buying Renishaw on any signs of weakness. Otherwise hold for the long-term potential.

Start your day with The Independent, sign up for daily news emails
ebookA unique anthology of reporting and analysis of a crucial period of history
peopleMathematician John Nash inspired the film Beautiful Mind
Richard Blair is concerned the trenches are falling into disrepair
newsGeorge Orwell's son wants to save war site that inspired book
Life and Style
Audrey Hepburn with Hubert De Givenchy, whose well-cut black tuxedo is a 'timeless look'
fashionIt may be a paradox, but the industry loves it
Arts and Entertainment
The pair in their heyday in 1967
Life and Style
fashionFrom bathing dresses in the twenties to modern bikinis
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine