Sage shares fall 13% amid its warning on 2021 margins

Sage Group CEO Steve Hare

Shares of Newcastle-based software giant Sage Group, the UK’s largest listed tech company, fell about 13% on Friday after it published good full year results but said its 2021 margins could be affected by investment in its cloud business.

Sage said its statutory revenue fell 2% to £1.903 billion, while statutory profit before tax rose 3% to £373 million.

Full year dividend will rise 2% to 17.25p per share, including a final dividend of 11.32p. Sage explained: “This reflects the group’s strong business performance, cash generation and liquidity position, and is in line with our policy of maintaining the dividend in real terms.”

Analysts said the results were fine but were disappointed by Sage’s guidance and outlook.

The Newcastle company said: “Sage intends to allocate further resource to Sage Business Cloud, in particular to cloud native solutions, and to increase its investment in sales and marketing and product development (R&D). 

“This will be part-funded by cost savings from the restructuring of our professional services business, and other efficiencies across the group.

“Given the uncertain economic environment due to COVID-19, we may flex the level of sales and marketing investment dynamically during the year, in response to market conditions.  

“The increased investment is expected to result in a planned reduction in organic operating margin of up to three percentage points.

“Delivery of these strategic priorities is expected to drive recurring revenue growth and new customer acquisition, generate efficiencies and, over time, lead to significant value creation through sustainable profit and cash generation.”

Sage Group CEO Steve Hare said: “We’ve delivered a strong performance in FY20, achieving recurring revenue growth in line with the guidance we gave at the beginning of the year, despite the COVID-19 pandemic.

“I would like to thank all of our colleagues and partners for their continuing commitment to our customers, communities and each other during this period.

“We’ve also made good strategic progress, delivering against our customer, colleague and innovation commitments.

“While the near term remains uncertain, these foundations position us well to support customers as they adopt digital business models, and I am confident that our additional investment in Sage Business Cloud, and in particular cloud native solutions, will deliver stronger growth and drive the future success of the group.”