Even buoyant Sage may succumb to the depression

Group’s optimism looks as out of place as a Hawaiian shirt at a funeral

An upbeat full-year results presentation from Sage struck a dissonant note on a morning when the UK was digesting forecasts of a flatlining economy. The FTSE 100 accounting and payroll software group said it was confident of increasing organic growth and lifted its dividend by a generous 25 per cent to 9.75p a share.

Such flagrant optimism looked as out of place as a Hawaiian shirt at a funeral, even with the stock market rallying later in the day. Don’t these people know there is an economic depression on?

Possibly not. Or perhaps it would be more correct to say that Sage, one of the UK’s few IT success stories, has appropriate self-belief. The Newcastle-based company increased yearly profits through the recent recession and could continue to defy doomsters. In the year to September 30, subscription renewals topped 80 per cent for the fifth year running.

Sage’s software is evidently as habit-forming for bean counters as Google and the Windows operating system are for the less conspicuously numerate.

Strong cash flows during a year that was hellish for many businesses, but a doddle for Sage, has left the company with minimal debt and an appetite for acquisitions in a buyer’s market. Underlying earnings beat forecasts, rising 8 per cent to £365m. Yet there were signs within this number of slowing momentum, reflecting weak US and Spanish offshoots.

If you were looking for a more negative slant, you could find it in downbeat comments from chief executive Guy Berruyer in the results statement. Sage depends heavily on the custom of small businesses in Europe and the US. A protracted contraction would mean fewer of them. Having risen 95 per cent over three years, shares with a forward earnings multiple of 14 times are below the sector average, but still high enough.

Kurd your enthusiasm

The half-year report of Genel Energy includes a reminder of the lucrative incentive scheme set up to reward Nat Rothschild, the prominent company promoter. Mr Rothschild, you may remember, created the Vallares cash shell that then acquired Kurdistan-focused oil explorer Genel, whose name it took.

Nice work if you can get it. Shares in the group have fallen 12 per cent since the float this summer. But on paper at least, Mr Rothschild has done very well. He bought about 7.4m shares at the float price of £10 per share, a stake that has fallen £9m in value. But a further outlay of £12m entitled him to 8m “founders shares”. Within the next six months these should convert into ordinary shares currently valued at some £122.5m.

The upshot is that Mr Rothschild is sitting on a paper profit of about £100m for an investment of £86m. And that is before factoring in an allocation of “founders securities” that pay out heftily if, for instance, the shares top £12.50.

Ordinary investors would then be in the money and, therefore, grateful to Mr Rothschild. He risked taking the bulk of first losses if Vallares failed to buy a foreign resources company. However, if the share price of Genel stays stubbornly low, the scion of the famous banking family could face criticism from City investors who have backed Vallares.

Mustn’t grumble

A break-up of the euro could trigger bank runs, rioting and lengthy economic weakness. But looking on the bright side, it could eventually be a jolly good thing for City traders.

Old foreign exchange risks and opportunities would be reborn along with currencies such as the Deutschemark and the drachma. An Italian corporate might, for example, find it cheapest to issue bonds denominated in French francs, and swap the proceeds and future interest liabilities back into lira. Businesses would, meanwhile, need to hedge against fluctuations in the relative value of such esoteric currencies as the Slovenian tolar and Maltese lira.

Traders who once dealt in instruments denominated in the European Currency Unit might be re-employed, abandoning their pipes and slippers at Haslemere station as they head for the City. The Ecu was a synthetic forerunner to the euro (pay attention, you at the back) comprised of a basket of European currencies but never used for humble retail transactions. Though regarded as effete by red-blooded dollar or sterling specialists, the Ecu spawned its own debt and derivatives markets.

Further economic schisms could revive such historic currencies as the Danzig gulden and the Mercian mancus. But by then we would all be living in caves and foraging for tubers and birds eggs. So the benefits to the City would, in that case, be strictly limited.


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