Sage Undervalued as New Management Actions Turnaround

A changing competitive and technological environment has seen the company struggle, but Sage's new management has focused on addressing these issues

Andrew Lange 23 November, 2018 | 8:27AM
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sage computer software accounting company turnaround undervalued

Sage (SGE) has a large footprint in the global small and medium business software industry. However, a changing competitive and technological environment has seen the company struggle to keep up with peers because of a muddled cloud strategy, decentralised organisational structure, and inability to leverage common technology across geographies.

Still, new management has focused on addressing these issues. While the shift to online rivals poses a significant long-term risk, over the midterm we believe Sage will continue to perform well thanks to a trove of loyal existing customers and a plan aimed at refocusing the business on a centralised customer-centric model that leverages the firm’s global scale.

The company will become more centralised, invest more in emerging cloud, hybrid, and mobile technologies, and deploy new pricing models in order to reinvigorate revenue growth.

These initiatives have the potential to improve Sage's performance and, to some extent, this has proven true with improved client renewal rates and top-line growth. However, continued execution will be critical, and competition from product specialists such as NetSuite, Workday, and Salesforce remains fierce. We think execution is critical to Sage's multiyear growth strategy as the firm refocuses the business and aims to reaccelerate organic revenue growth.

To support this endeavour, key products that will be the backbone of its go-to-market strategy include: Sage One, Sage Live, Sage X3 Cloud, Sage People, and Sage Intacct. Also, key to Sage’s future success will be how the firm is able to attract customers to these new global platforms, which will help to support the firm’s goal of shifting its user base to more subscription-based products and services.

To that end, the company will not force its users to cloud products and will look to gradually migrate them by illustrating the added value that comes with cloud-based products and subscription services, we think Sage Business Cloud holds some value here. Over the midterm, we will monitor new customer acquisition, annualised recurring revenue, and annualised software subscriber base to gauge how the company is tracking.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Sage Group (The) PLC713.00 GBX-6.48Rating

About Author

Andrew Lange  is an equity analyst for Morningstar