Spending rise puts Sage back in black

Sage, one of the UK’s largest software vendors, returned to growth in all regions for the first time in a year and a half as small and medium-sized companies tentatively began spending again on business software.

Newcastle-based Sage supplies accountancy and payroll software to more than 6m small companies around the world, and serves as a barometer of business sentiment.

“Small businesses have told us that they are significantly more optimistic than 12 months ago,” said Guy Berruyer, who took over as chief executive last October with a brief to revitalise the business and return it to growth.

Sage saw organic revenue growth of 4 per cent across the company for the six months to the end of March, with revenues up 3 per cent at £743m. Pre-tax profits were up 5 per cent at £167m. This compares with a 2 per cent organic sales contraction last year.

Even the company’s struggling North American business saw 1 per cent organic growth. The unit was dragged down, however, by a 5 per cent fall in sales at the healthcare business, which supplies software for doctor’s surgeries.

Mr Berruyer declined to comment on persistent speculation that Sage is planning to sell its US healthcare unit, which has performed poorly since the company bought it in 2006. Instead, he focused on hopes that the division would benefit in the second half from US stimulus funding to help doctors switch to electronic patient records.

“It is a very dynamic market because of the stimulus package, and we are very pleased with order intake over the last few weeks,” Mr Berruyer said. However, he cautioned that recovery for the division would be gradual and unlikely to have much impact until next year.

Underlying earnings per share rose 4 per cent to 9.87p, ahead of market expectations.

The shares fell 0.3p to 286.4p.

FT Comment

With its 6m customers Sage is a juggernaut, difficult to speed up or slow down. It suffered less than its peers in the downturn, and is now seeing less of a rebound. Sales at SAP, for example, rose 21 per cent in the recent quarter compared with Sage’s 4 per cent. Because most investors assumed the company had stopped growing, the shares have been languishing at a rating of slightly less than 14 times earnings estimates for this year, well below the software and service sector average of 16 to 17. If the US healthcare unit can be turned round and Sage can realise plans to offer new online services, there might be more of a growth story to tell and the shares could be re-rated. However, these are still big “ifs” and in any case, this being Sage, it will not happen quickly.

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