Sage Group Share Forecast November 2021 – Time to Buy SGE?

Shares of software development company Sage (LSE: SGE) are in the red today, currently trading at 799p at the time of writing. Goldman Sachs recently downgraded the FTSE100’s tech staple to “sell” which triggered some downward movements on the share price. What does the downgrade mean for investors interested in Sage Group? – Let’s find out.

Sage Group – Technical Analysis

Sage Group’s financial statement indicates a market cap of £7.468 billion with total assets worth £3.444 billion. Revenue for 2020 was at £1.90 billion with a profit margin of 16.29% compared to £1.94 billion in 2019.

Oscillators such as Average Directional Index (14)(26.8) and Awesome Oscillator(36.3) are neutral. On the other hand, moving averages such as Exponential Moving Average (10)(757.6),  Simple Moving Average (10)(753.4), Exponential Moving Average (20)(743.4),  Simple Moving Average (20)(735.2) and  Exponential Moving Average (30)(737.1) is indicating a buy action.

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Recent Developments

Sage Group was founded in 1981 and provides the development and distribution of accounting, accounts, and salary check management software programs. The company has carved a niche for itself in America and Europe with its subscription model having over 90% customer retention figures.  Recurring revenue for the company increased by 5% to reach £1.2 billion which was bolstered by an 11% growth of software subscription which now stands at £920 million. Sage Intacct, the company’s construction-focused accounting software accounted for 7% growth in North America, which is an indication that its sector-oriented products work better in foreign markets.

The company recently joined as a member of the World Business Council for Sustainable Development (WBCSD) with 200 other forward-thinking companies. Sage will work with other companies and contribute to key projects across climate, social inequality, reporting and the future of work as part of this membership. The company has already pledged to become Net-Zero by 2040 and has planned to reduce carbon emissions by 50% by 2030. Sage has also committed to the UN climate change Race to Zero, the UN Global Compact Business Ambition for 1.5°C Pathway and the SBTi (science-based initiative).

Should You Buy SGE Shares?

Investors thinking of buying Sage shares should look at the company’s financials. While it has a history of slow and steady dividend growth, the earnings per share growth over recent years has been fluctuating between negative and positive. This poses trouble for the dividend in the future and this year’s dividend cover of 1.22 is at risk of being cut. Sage’s strongest growth days are long over. Competitors like Xero took advantage of Sage’s prolonged and mismanaged transition to the cloud. Not only has this tested the patience of investors, but has also driven off Terry Smith and other successful investors.

Increasing competition is another threat to Sage as competition from the likes of big global players like Amazon Web Services (AWS) can dampen its plans of expansion in the US. While it still managed to grow 7% in the region despite AWS’s dominance, there are no guarantees that the company can sustain this growth. Payroll management, HR and accounting solutions is a competitive landscape and Sage is having to spend more in an attempt to win over customers.

At current price levels, Sage shares aren’t exactly cheap. It has a P/E ratio of 27 which is lower than most software and technology companies. As a mature company, the slow growth doesn’t justify the high P/E. There is little chance of Sage outperforming the bigger market in the years to come. Considering all of these factors, you can avoid SGE shares for the time being.

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