Thursday 5 May 2016 12:19 pm

Sage Group transformation leads to revenue boost

Sage Group's endeavours to makeover its business model are paying off, after the company reported a boost to revenue in its half-year results today.

However, investors were less thrilled by what the announcement had to offer, with shares in the company trading down 3.2 per cent at 585p shortly after 12pm London time. 

[stockChart code="SGE" date="2016-05-05 12:11"]

The figures

The company, which provides software for businesses, announced that its revenues had grown to £747m for the six months ended March 2016, up 4.1 per cent compared with £717m the year before.

Organic revenue for the company also grew by 6.2 per cent, while organic recurring revenue grew by 10 per cent to £513m.

However, profitability proved more problematic, with profits before tax for the period dipping to £142m, down 15.6 per cent from the prior year's £168m.

Why it's interesting

The company is currently transforming its business model into something more competitive. This process has included cutting the number of bricks-and-mortar premises it leases, which is now down to fewer than 100, and building its management team, having appointed over a dozen new joiners to the leadership team during the period.

Sage also revealed today that it had agreed to purchase 21 per cent of the share capital in software developer Fairsail for £10m. 

What Sage said

"In this phase of the transformation, we have been very focussed on improving the capability of our management and creating a culture where customer obsession and innovation becomes a way of life at Sage," said Stephen Kelly, chief executive. "Our customers are the entrepreneurs who drive economic growth and prosperity.

"These entrepreneurs deserve awesome technology that is an enabler to their growth and success."

What the analysts said

Analysts at Canaccord Genuity seemed less impressed with the company's performance, remarking that the "Sage cloud dill needs more thyme" and downgrading its rating from "buy" to "hold". Although the company itself said it believed it was still on target for a 27 per cent operating margin by the end of the year, Canaccord Genuity revealed that it thought this would be "challenging".