Sage shares plunge despite surge in profit as tech giant’s guidance disappoints

Enterprise technology firm Sage has reported a surge in profit and gaping margins as it continued to see growth across all regions and strong demand for its cloud software.

Despite the performance being in-line with analysts’ estimates, Sage’s shares plummeted 12 per cent in early trading after it suggested revenue growth for its fiscal 2024 would come in below expectations.

The FTSE 100 company posted an underlying operating profit of £254m for the six months to 31 March 2024, up 18 per cent from the same period a year earlier. Its margin grew 160 basis points to 22 per cent.

It reported a £31m decrease in recurring and non-recurring items, mainly driven by lower restructuring and M&A-related charges.

On a statutory basis, Sage’s operating profit came in at £215m, up 38 per cent from a year before. The firm saw a 10 per cent increase in underlying total revenue to £1.15bn.

Its annualised recurring revenue – a key metric for software firms measuring income from subscriptions – came in at £2.25bn for the six months. This figure was up 11 per cent from a year prior.

Sage said the increase reflected growth across all of its regions, balanced between new and existing customers.

It reported “strong strategic progress”, helped by an expansion in its cloud business and its acquisition of construction-focused Bridgetown Software earlier this year.

The company unveiled an interim dividend of 6.95p per share, compared with a 6.55p a year previously. Its basic earnings per share soared 57 per cent to 15.3p year-on-year.

Sage said it expected organic total revenue growth for its full fiscal year to be “broadly in line with the first half”, continuing to anticipate an upward trend in its operating margins in 2024 and beyond.

However, a company-compiled analyst consensus from March estimated 9.6 per cent organic growth for the full year, up from nine per cent in the first half. Peel Hunt analysts said in a note that “the lack of an organic upgrade” would likely hit investor sentiment.

Adam Vettese, an analyst at investment platform eToro, said: “The outlook doesn’t seem to show any signs of momentum waning with new AI integration on the horizon and forward guidance affirmed.”

“It is very surprising to see shares down so significantly this morning and many investors could see this as an opportunity to get in at a discount,” he continued.

Newcastle-based Sage provides nearly half of the UK’s small businesses with accounting, human resources and payroll software. It employs more than 11,000 people globally, with roughly a quarter of its revenue coming from the UK and Ireland and a further 40 per cent from North America.

Chief executive Steve Hare said on Thursday that demand for Sage’s products remained “robust”.

He added: “We are resolutely focused on innovation, as both a source of near-term competitive advantage and a foundation for our long-term success. We continue to introduce new AI-powered products and services that deliver enhanced productivity and insights, driving value for both existing and new customers.”