Sage Group Share Price is Extremely Cheap. More Upside?

The Sage Group share price jumped sharply on Wednesday as investors bought the dip in the “forgotten” software company. The UK stock rose to a high of 655p, which was the highest level since June 8th of this year. It has risen by more than 11% from the lowest level in June. Its market cap has risen to over £6 billion.

The forgotten software company

Sage Group is a leading software company that provides services to small and medium-sized companies globally. Its software has a complete suite of products such as accounting, payroll, tax, human resources, and payments among others.

In the past few years, Sage Group has transitioned its business from hardware to the cloud. Indeed, most of its revenue comes from subscriptions, which are good in providing reliable and easy-to-forecast revenues. Sage competes with companies like Intuit, ADP, and Paychex. 

The company has had a relatively slow revenue growth in the past few years. Its annual revenue has risen from $2.3 billion in 2018 to over $2.487 billion in 2021. At the same time, the firm is highly profitable. Its annual income is usually more than $380 million.

The Sage Group share price has crashed by almost 30% in 2022. This performance is in line with how its peer companies like ADP and Intuit have performed. Analysts believe that this decline is likely because of the soaring inflation and the overall transition from a low-interest-rate environment. 

The bull case for Sage Group

Still, there are several reasons why the Sage stock price could bounce back in the coming months. First, Sage is a British company that is listed in the UK. However, it generates most of its revenue outside of Europe.

In 2021, North America’s revenue was over 687 million pounds compared to Europe’s 402 million. Other international markets brought in 757 million pounds. Therefore, the strong US dollar will have positive catalyst to the company. The British pound has fallen by over 13% in the past 12 months.

Second, Sage Group is an attractive acquisition target. For one, it has a strong brand name in its industry and its revenue and profitability growth are fine. Most importantly, the stock is significantly undervalued compared to the likes of Intuit and ADP. 

Third, its subscription model is important for the company’s growth. For one, it has almost zero churn and the revenue per user is relatively stable. In 2021, its software subscription business represented over 70% of its total business. 

Finally, Sage Group is an excellent track record of rewarding its shareholders through dividends. Most recently, it even started reducing its share count through share repurchases. The recent report said:

“Reflecting the Group’s continuing strong business performance and cash generation during the first half, we have increased the interim dividend by 4% to 6.3p. Going forwards, Sage will adopt a progressive dividend policy, intending to grow the dividend over time while considering the future capital requirements of the Group.”

Sage Group share price forecast

Sage Group share price
Sage Group share price chart

Turning to the four-hour chart, we see that the Sage stock price has been in a strong bullish trend recently. The shares have moved above the important resistance at 629p. They have also moved above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved to the overbought level. Therefore, Sage will likely continue rising as bulls target the key resistance level at 700p.

Leave a Reply

Your email address will not be published.