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Hi BBD
I still think HB's are far better value than Sage, but obviously the Market doesn't. Regardless how you calc your own PER's and so level of Under/Over valued amount, the Market determines the Sp and as Brexit with No Deal, Covid-19 and Recession are looming, I expect the Sp's to drop even more. Regardless of PER (and my calc of justifiable Sp), I'm not going buy into Companies where I expect the prices to fall even more.
No intention of investing again in HB's until Summer next year.
I am hoping Sage continues to grow successfully (not anticipating any disaster).
I started moving from HB's to ggp last year and completed that process in July, very happy with that cos ggp have done so well.
Don't see any conflict here - I suppose what I am saying is the Market has got it all wrong (presenting opportunities) and while PER and Prospects vital in any valuation, investment strategy must be based on how you see the market moving.
BoL
Hi Nige-W,
in July you suggested that builders offered better value than Sage because of their relatively low PERs.
Over the two months since then Sage has proved more valuable, and now you no longer see value in builders, despite their continuing low PERs, and think they will go down. So it seems your own actions are not really driven by PERs, but by some other factor which has changed in the last two months?
You still downplay Sage based on PER however, with a separate point claiming that their high PER is a market hangover from when they used to be a more dynamic company. That is arguably an outdated viewpoint itself, ignoring the turnaround of the company in recent years, it's improved performance, and it's brighter prospects. For the PER to change significantly would require a dramatic change in the market's perception of this, and you seem to be forecasting such a change imminently? If so, when do think this is likely to occur (roughly) and why?
My actual point was that this particularly volatile period is a great time to have a huge buy back program in place.
It is now less clear whether you agree or still disagree, but perhaps you are wavering a bit with your abandonment of the relative PER argument in favour of the "too high" PER one.
Hi BBD
All things being equal all companies should have about the same PER. This means the variation of PER's is dependent on how the Market regards the prospects of the company, or if good prospects higher PER, if poor prospects lower PER.
From this point of view Sp doesn't matter, all about EPS. Companies in different sectors will be affected in different ways by the disasters we are living thru (or to come), but I think fundamentally Builders are (and have been) undervalued for years.
Resilient to Recession (as proven by austerity), sales bounce back (after lock down) and Brexit with no Deal will affect LSE builders much more Nationals.
Due to the fact that Sage is not a high growth company any more, I don't think it justifies such a high PER, and due to the resilience of Builders I think their prospects are better than the Market thinks, so justify a higher PER.
Incidentally one of the best builders, bkg (Berkely Group) have been buying back shares for ages - not sure if it has benefitted them or their share holders. Just on Watchlist cos LSE.
A comparison of SP, EPS historically (since 2010) would be interesting, if the market is right decrease in Sp should anticipate decrease in EPS by about the same %age.
I anticipate low point for Builders early next year, so mainly out now, replaced with Gold (via ggp). Volatility means Opportunity, but I'm not a day trader, just happy to be sat on Gold now.
BoL
Regarding comparison with Barratt, it's not strictly relevant, as value in Sage is neither coupled with, nor mutually exclusive with, value in Barratt (or other builders). Yet since you have repeatedly suggested it, it may be useful to explore that. Their SP performance is more or less equal over the period since my comment, but it should be noted that at that date (18th March) Barratt had suffered a spectacular collapse, losing more than half their value, so they were starting from a relatively low base. Or from another point of view, they also offered good value! However, since the time of your comment (10th July), Sage have outperformed Barratt substantially.
There are still a few months of the buy back program to run of course, but they look like being volatile months, even by current standards, with both the US election, Brexit compromise, and possibly COVID-19 vaccines. The program continues to offer a hedge against that volatility, which arguably equates to superior comparative value over the period.
Hi Nige_W,
It seems that you still disagree that the share buy back program offers value here? Not value as compared to builders, which is an interesting but slightly eccentric angle, but inherent value over the buy-back period, like a hidden asset on the balance sheet. The money could have been used in a different way, but you don't seem to be advocating more R&D spending judging by your surprisingly negative comments about "adoption of new tech". Perhaps you would have preferred a special dividend? That certainly would have lifted the share price in the short term! The buy back program should have the long-term effect of gradually reducing the PER by steadily reducing the number of shares in issue, so perhaps it offers the best value as measured by your builder-centric assessment criteria?
My original "value" claim was in response to RK11's comment noting how hard Sage were hit by COVID-19, and I was highlighting the serendipity of a massive share buying programme coinciding with a period of potentially very low share prices. In fact the share price has, as usual, not behaved as expected! Whether the underlying business justifies this remains to be seen, as many Sage SME clients will be struggling. We remain in the grip of extreme uncertainty, about the disease, the economy, and life in general, so thanks very much for the luck, I'll need it, and good luck to you too.
Hi BBD
Thanks for the reply and I apologies for his late response.
From 1996 to 2001 Sage was my biggest single investment cos I was invested in Tec companys. Basically I stopped investing in 2001 during DotCom bust and lots of great coys taken over by foreign competition when they were cheap.
Started investing again in 2013 hence my start date. Sge is a great Company but very different from what it was in the 90's. It is now a worldwide brand, and growth (thru acquisition) has slowed, while I'm also not too impressed by their adoption of new Tech (like the cloud). So not sure they deserve a Per of 26.
Builders were cyclical when Govt controlled interest rates. An increase would cause a recession and builders would slump, but that has not happened this century. Banking crisis, Austerity,, Brexit (or lack of), Covid19 and Recession cause last / next slumps. It is very noticeable that Austerity had almost no affect on Builders. This could be cos so many jobs lost in the industry (and lack of apprenticeships) that means after 12 years supply has not caught up with demand and probably won't for years.
I am not going to compare Sage to Barratt (the best Imho), you can do that if you like, but once we are over those hurdles, I am sure Builders will thrive again.
BoL
Hi Nige-W
My comment about value in Sage was made on 18 March this year, and referred specifically to the period up to January next year, i.e. the length of the buy-back program. Comparing over a different time period is shifting the ground, an intelligent military strategy if you can get away with it.
The fact that there was value in Sage, due to the fortunate availability of large funds when the SP was relatively low, didn't imply that there is necessarily more value than elsewhere, but AFAIK the builders do not have such an extensive buyback program in place? I didn't claim that builders ARE cyclical, only that the market seems to value them as if they are, and hence the perpetually low PERS. Perhaps you are suggesting that that is changing, and therefore you expect builders PERs to rise over time purely due to a change in perceptions? If so, why, and why now?
It is true that Sage have historically been relatively slow growing, and for much longer than your selective comparison period, but they also haven't suffered massive contractions like builders have, which your period seems to accidentally avoid. Those contractions are the reason their PERs stay low of course, because no-one knows when the next one will come, but arguably COVID-19, Brexit and government anti-corruption initiatives make one more likely. Sage have a radically altered business model, strategy and new management over your chosen time period, so that past performance is probably a poor guide to future value, but in the period between March 18th this year and January next year, their share buyback program has, and will, buoy up the share price and is the equivalent of a hidden dividend.
Hi BTB
Sp sge 04/01/13 337, 17/07/20 680 = 102 % increase
Av of 5 Builders Sp (bdev, bwy, psn, rdw and tw)
04/01/13 471, 17/07/20 1486 = 216 % increase
I argue that Builders are not cyclical any more, and growing at twice the rate of Sge.
BoL
Hi Nige_W, it's a shame you missed the rise here, but hopefully you found even better value elsewhere.
PER is one way of measuring value, but the market seems to weight stocks differently, especially with what are deemed to be "cyclical" stocks - housebuilders seem to be permanently at tempting PERs, for example, in good times and bad, so they always look cheap, and their relative value by that measurement needs to be taken with a large pinch of salt. Similarly, growth shares like Sage tend to have persistently high PERs. The value I suggested was the sustained power of share buybacks over a long period, starting at relatively depressed prices (by Sage's historical standards) due to the lockdown, and continuing right through to January next year. So far, so good.
Looks like we can expect a trading update this week, will be interesting...
Hi BBD
I don't hold sage anymore, cos Per 26.8. House Builders vary from about 6.0 to 7.0 - say av 6.5.
So if they had sage's Per they would be about 4 * current price. That looks to me like good value - not Sage.
Having said that I'm mainly out of Builders now cos expecting prices to drop even more.
BoL
Any news on what's happening with Sage ? looks like its on a downwards trend & no news about the postponed share buyback
haaa good joke :D Sage would never
Jesus, they cut 53% of their workforce.
Actually Sage are nicely positioned to take advantage of the crash with a perfectly timed massive buyback programme as a result of the sale of Sagepay. A silver lining par excellence, with the buying scheduled to continue until January next year. Long term value here, surely?
Looks like Sage has been hit hard by Covid 19 hopefully make a full recovery
Should be noted that a new shorter, Marshall Wace, emerged a month ago. Long term shorter GLG Partners also increased their position. The overall short interest is small but increasing.
Also, Deutsche and Credit Suisse gave "sell" and "underperform " ratings today. They did raise their targets, but they are still well below current SP.
Shorters obviously took a hit on Q1 results, and the analysts previous forecasts were not a good guide. Downside view always worth keeping an eye on though.
The end of the transformation seems in sight now, with the ratios shifting dramatically over the last year. If anything like 22p IS returned later this year, that would more than offset any short term slowing in dividend growth - last year the TOTAL dividends were only 16.91p! I like the fact that they have paid down debt too, lots of positives atm. Management seem to have made the right moves to get the company into a good groove.
Excellent Q1 trading update today. This provides reassurance that the transformation is being successful and the investment is paying-off. Key points:
Recurring Revenue +10.7% - indicates that the SasS transition is proceeding at pace;
Total Organic Revenue +6.7% - better indicates the underlying growth rate (ignoring the switching of existing customers to SaaS contracts);
Sage Business Cloud +12.7% - indicating the strategic shift to a Cloud-based product offering is proceeding well. This is where SGE is 'perceived' to be weak and behind their competitors Xero and Intuit. In fact Sage are fast building a powerful Cloud business with an attractive offering of products built on a common platform (an IT service fabric as they describe it).
So, whilst we're conceding a slower growth in dividend returns whilst investment in the faster pace of transformation takes place - its working well and building future value.
We also have a return of capital once the SagePay disposal completes of c. £250m to come. We don't yet know how SGE intend to make this return however, if returned all in cash would equate to, I estimate, 22p/share (current div is 16.91p).
Regards, Maddox
Ignoring Brokers who rush their reports focusing on the margin and profit decline.
The dividend increase was well below the norm of around 8% over the last ten years.
The dividend yield of 2.35%, is in the range between 2% and 3% over the last five years, therefore I hold my position and wait for the dust to settle.
The Company should have made their intentions clear on the distribution of the sale proceeds between a special dividend or a share buy back.
Mr Market and the majority of the brokers appear to dislike these results.
However, IMHO Sage are doing exactly the right thing and also exactly what they set out to do. Which is investing in sustainable long-term (high quality,high margin) revenue growth. This hits the margin in the short term. It costs roughly twice the annual revenue to recruit a new customer but you then get 10 years plus of that revenue from that customer. So it's a highly profitable investment but you pay for it in the first year - hitting the reported margin and slowing the growth in dividends.
Mr Market and the brokers analysts are being very myopic and short term. And there-in lies the opportunity for the patient far sighted personal investor. The shares are off 33p down to 708p as I post, and with a cash return in prospect from the sale of SagePay. So I'm buying.
Regards Maddox
Revenue £1.94B - up 4.9%
Profit £425M - down 11%
Dividend 11.12p final, making annual total 16.91p - up 2.5%
Capital return of £250m from sale of Sagepay announced, form of return not yet decided.
Thought I’d check-out what the brokers’ recommendations are on Sage on the eve of a trading update – hmmm they are not great:
Strong Buy........2...(6)
Buy....................0...(1)
Neutral..............8...(9)
Sell....................2...(3)
Strong Sell........7...(3) Brackets are the scores of one month ago
........................19...(19)
Source: Share.com
So the brokers have are looking increasingly negatively at Sage. With expectations apparently set so low it will be interesting to see the reaction tomorrow.
Regards, Maddox
Sage have agreed the sale of their payments business SagePay to Elavon for £232m which looks like a good price. Based on the units figures for fy 30Sep18 of £41m revenue and £15m profit - sold at 5.66x revenue and p/e 15.47.
They will be booking a profit on disposal of c. £180m.
Whilst payment functionality is an important need for Sage's clients seamless accounting/payments integration with a range of payment service providers (PSPs)is the market need. Thus SagePay didn't fit strategically and will leave Sage a more focused business on its global ambitions and its fast growing Cloud SaaS business.
With Brexit in view it also de-risks the business by reducing the revenue mix away from the UK and £Sterling exposure.
Regards Maddox
Full year results coming in on the 20th good time
to top up