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Sage has hit its numbers again with this excellent set of results (full year to 30 Sept 16), the published highlights being: • Achieved organic revenue growth of 6.1% (FY15: 6.0%) and the fastest rate of recurring revenue growth for a decade of 10.4% (FY15: 9.0%); • Software subscription growth of 32.3% (FY15: 28.9%), in line with the planned transition and planned decline in SSRS revenue of 8.5% (FY15: decline of 0.7%); • Customers embracing closer subscription relationships with 46% increase in software subscription contracts to just over one million (FY15: 690,000) and an increase in retention rates to 86% (FY15: 84%); • Accelerating revenue growth in Europe, Africa and Brazil; slower performance in Asia (one off regulatory change in the prior year); growth in North America consistent with last year; • Underlying cash conversion at 100%, supporting free cash flow of £254m and the 8% increase in full year dividend to 14.15p. Sage is managing to maintain its performance whilst undertaking a major transformation: >> Firstly, the conversion to Software-as-a-Service (SAAS) subscription pricing is continuing; and >> Secondly, the new strategy for growth is reshaping the business quite dramatically. SAAS pricing: Is very beneficial, customers like it and if fosters increased loyalty/reduces churn but at the cost of a short/medium term hit to revenue recognition. About 70% of revenue is now recurring and the growth rate is accelerating: 2013 – 6%, 2014 – 7%, 2015 – 9%, 2016 - 10.4% So, at some point and it cannot be too far off this will drive up sales from its current 6% organic growth rate. New growth strategy: CEO Stephen Kelly is making dramatic changes in pursuit of sales growth with 72% of the top leadership changed in the year. In Sales and Marketing, 300 staff left and 200 recruited with new skills in digital marketing. The new strategy is a move away from being federated country–specific with many products to fewer global cloud-based products aimed at specific market segments – Start-up, Scale-up and Enterprise. The new entry-level mobile and revamped cloud-based products look attractive. To support this fewer regional language-specific centers will cover the globe. The cost savings generated, £51m p.a. so far, will be ploughed back into marketing and sales to target new customer acquisition. My opinion: I like Sage’s existing attributes it has a strong economic moat, reflected in attractive margins and excellent cash conversion. It is the only global player in the SME accounting product market and so has the knowledge and expertise to cater to local tax compliance requirements. The new growth strategy makes sense with a new focus on start-ups and the opportunity to dominate this niche globally. Whilst, it’s still early days and it is not yet reflected in the top-line numbers there is enough in these re
Hi Courtier, Yep the crucial passage in your posted link is: 'REITs are required by law to maintain dividend payout ratios of at least 90%, making them a favorite for income-seeking investors. REITs can deduct these dividends and avoid most or all tax liabilities, though investors still pay income tax on the payouts they receive.' Unite has tax losses that have been used to off-set against corporation tax - but these will be all used up in 2016. So converting to a REIT then becomes an attractive means of reducing tax and consequently providing a higher tax free (at source) income for shareholders. Unite's payout ratio was 65% in 2015 and so we can expect a nice rise in dividends for f/y 2017 if REIT conversion is approved. The 1H 2016 interim dividend was increased by 9% and I am expecting to see a higher increase for the full year. So as Unite matures and cash generation grows this will pass through to shareholders in growing dividends and also translate into a higher NAV and share price. As Unite is currently trading at a discount to the independently valued 620p Net Asset Value per share - it looks a very attractive investment from here IMHO. Regards, Maddox
Another positive trading update from Unite this morning covering the current 2016/17 academic year. Key points: >> Occupancy 98% >> Rental growth + 3.8% >> On track for EPS yield growth of 4.5% for 2016. >> Market - 2016/17 sees record student numbers up c.40k The growth in student numbers is further exacerbating the existing under-supply of student accommodation. Another positive point is that the growth has been strongest in Unite's target locations. With a positive outlook and development pipeline of a further 5,500 beds transparency of future growth in NAV and income is excellent and with REIT conversion will be seeing a likely 10% increase in the payout ratio. The future is of course uncertain but it's difficult to find any points of concern that would explain the recent fall in the share price. As I post the sp is 566p against last reported NAV of 620p as at 30 June. Regards, Maddox
....and as I've said previously - for anyone tracking UTG - the shorters are presenting a great opportunity to get into UTG at a good price. But you'll probably need to be quick. The trading pattern of Unite, and the lack of RNSs suggest that the shares are tightly held by FIs. When the shorters look to buy-back the shares to close their positions the sp might shoot back up pretty rapidly.
A tip for Unite investors.... The hedgies have to borrow stock in order to sell short. Typically, the Nominees holding investors' shares will lend the stock to shorters for a fee. If you object to your shares being used to drive down the share price of your holding - you can prevent it. Just place a Limit Order to sell your holding at a much higher price - say for UTG the 770p JPM target. This prevents the Nominee from lending your stock or makes them have to recall it from the shorter. Regards, Maddox
Well some of these hedgies aren't so big - CQS (UK) LLP - asset value was c. £90m as at Dec 2013. No point going after really big fish when you are small fry!
Hi Chaps, I've been having a look at this dip in the share price and it appears that we have a couple of hedge funds shorting the stock just prior to the Morgan Stanley down grade report - Basso Capital Management & CQS (UK)LLP. Far be it for me to suggest that this is a coordinated bear raid. What is interesting is that the report is based on the student market contracting and this affecting Unite. However, it might also be expected to also affect ESP and DIGS - whereas their share prices have remained very resilient - DIGS is up as I post. Also, I'm far from persuaded by the report. There is a huge under supply of student accommodation. Last year 25,000 beds were added but student numbers increased by 60,000. There would have to be some cataclysmic event to bring this market into balance - so I'm satisfied that Unite is still an attractive investment in the short, medium and long-term. Unite's NAV was 620p at 30th June and Morgan Stanley sp target is 590p, other analysts targets are up to 770p so UTG are looking good value at the 550p sp as I post. What we are being presented with is a great opportunity to buy on the dip. However, as we have seen on previous Unite dips - it tends to be a spike - so you may need to be quick before the hedgies cover their positions and it charges back up again. Regards, Maddox
Another RNS today - this time a well located development site acquired for 570 student beds this time in Sheffield. Again, this will be financed (£35) from internal cash flow. Unite's maturing business model will throw off increasing amounts of cash - and with conversion to a REIT that will flow to shareholders. With a development pipeline of now 5,500 student beds Unite also offers excellent transparency of future growth as well. So asset backed, very conservatively financed (loan to value ~35%)delivering a potent combination of organically generated growth and prospective increasing dividend stream Unite offers a highly attractive risk/reward profile. Regards Maddox
More good news; UTG get planning approval for a £70m development in the center of Liverpool adjacent to an existing property currently 99% let. So a perfect fit. Also, they are going to fund the development from internal resources. As they have just sold two properties for £88.4m realising a nice £34.7m profit(65% on development cost) they have the cash ready to recycle. So all looking positive based on the news - so why has the sp fallen to as low as 590p? Well the other players in the market, ESP, DIGS, haven't fallen so it appears isolated to UTG. And, as the news is all positive, I suspect a large FI is re-weighting its holding, possibly taking some gains to invest elsewhere. Once that clears I wouldn't be surprised another rapid climb up to 660p. Regards Maddox
Unite has taken off like a rocket this morning up 14.5p 2.26% as I post. Cannot find any news item or RNS to explain this. Anybody have any clues? Regards Maddox
Hi Nige_W, If you haven't spotted it there is a very nice piece of detailed fundamental analysis by Phil Oakley http://www.sharescope.co.uk/philoakley_article113.jsp You cannot argue with the numbers but I also like to take a strategic analysis approach to understand the underlying drivers and competitive positioning. I think that there is still more to come, so I will add on any fall-back in the share price in the wake of profit taking. Sometimes it pays to buy expensive.....Sage is a case in point. Regards, Maddox P.S. I'm not sure how I managed to post twice?
Sage has actually closed up on the day of their data breach report! Sage's share price has shown remarkable resilience today closing up 0.5p after opening down 34p (4.6%) in response to news of their data breach. Clearly this is early days and there will undoubtedly be more detail to be revealed - and one would have envisaged that the sp would suffer a dip just in view of the uncertainty and potential reputational damage. But no, Mr Market has shrugged-off this incident and is pricing Sage a tad higher than the previous close. I'm both astonished that there isn't a sp fall and as a holder very impressed. Regards, Maddox
There is a saying within the cyber security community 'that there are those businesses that have been hacked - and those that don't know that they have been hacked!' These announcements are unfortunately becoming a fact of business life, and destined to increase as mandatory reporting becomes the legal requirement. Whilst, the news that Sage have suffered an internal breach of security is very disappointing it is unlikely this will cause a material cost to the business. Dido Harding CEO of TalkTalk was embarrassingly inept in handling the reporting their data breach incident last year - but long-term damage has been minimal and the share price recovered. It will be interesting to watch how well Sage respond and manage the PR. It is these, what I call, 'acid test' moments that provide a great insight into how good the management team of a business is. A serious challenge such as this, if well handled, can reinforce confidence that you can trust them with your personal investment in their business. Regards, Maddox
There is a saying within the cyber security community 'that there are those businesses that have been hacked - and those that don't know that they have been hacked!' These announcements are unfortunately becoming a fact of business life, and destined to increase as mandatory reporting becomes the legal requirement. Whilst, the news that Sage have suffered an internal breach of security is very disappointing it is unlikely this will cause a material cost to the business. Dido Harding CEO of TalkTalk was embarrassingly inept in handling the reporting their data breach incident last year - but long-term damage has been minimal and the share price recovered. It will be interesting to watch how well Sage respond and manage the PR. It is these, what I call, 'acid test' moments that provide a great insight into how good the management team of a business is. A serious challenge such as this, if well handled, can reinforce confidence that you can trust them with your personal investment in their business. Regards, Maddox
Another jump in the sp today up 15p to 716p as I post. I'm wondering whether this is market reaction to the Sage Summit in Chicago. It seems that CEO Stephen Kelly has made a step-change in the pace of product innovation and is making a good job show-casing them in Chicago. That, together with the new partnerships and market positioning of Sage 'championing entrepreneurs' is starting to change perceptions. I like the bold ambition of Stephen Kelly and, whilst it's still early days, I think it'll come through in the numbers. If you have seen anything else that might be driving this sp rise - please post it up. Regards, Maddox
EPRA earnings up 22% to �36.1m, EPRA eps up 15% to 16.3p, EPRA NAV up 7% to 620p. Interim div up 9% to 6p/share. Loan to Value 35% - very conservative leverage. IFRS profit including revaluation gains down at �106.7m (2015 �208.3m) due to big uplift last year. Conversion to REIT in 2017. http://www.investegate.co.uk/unite-group-plc--utg-/rns/interim-results/201607260700101864F/ Ironically, UTG was the share I was most confident was Brexit-proof but took the largest hit!! Whatever, nothing of concern in these figures and outlook statements very positive: 'Despite the uncertainty caused by the result of the EU referendum, the fundamentals of our business and the student accommodation sector remain strong. The demand:supply outlook for student accommodation remains favourable and our earnings growth trajectory is underpinned by our efficiencies of scale and a high quality development pipeline, focused on cluster flat accommodation with a lower price point, where the rental growth outlook is strongest.' Regards, Maddox
Positive update and valuation uplifts on their student property funds - albeit independently valued prior to 23rd June - driven by rental growth and a positive outlook statement 'we expect to see continued high demand for purpose-built student accommodation' Regards, Maddox
Couple of points for your consideration: aa) Student accommodation is a very different species to commercial property (office and retail primarily); bb) The cost of developing student property will be dropping along with the fall in commercial property development activity; and cc) More land will be available at more reasonable prices for student accommodation development. The financial viability of student property development in Central London was becoming marginal in competition with commercial property development. IMHO the linking of the post-Brexit travails of commercial property with student accommodation is miss-placed. Every cloud as they say..... Regards, Maddox
Hi Nige, Well maths ain't got much to do with it - we're talking predictions of the future and that is obviously inherently uncertain. So FWIW just run my own numbers (assumptions) and my sp target from now until 31 Dec 2016 is 675p. Regards Maddox