Sage, one of Britain’s biggest financial technology — fintech — companies, made one big change to the services it provides and now revenue and shares are popping.
So, what’s the change?
Sage, an accounting and payroll software company with a £6 billion market cap, is transitioning from its traditional model of organic software, “installed via floppy disk by a chap who comes to your office” as research analyst Augustin Eden at Accendo Markets puts it, to modern cloud-based technology where customers pay a subscription service.
Basically, it is shifting from physically installed software to services that require local or personal devices to handle applications, to more agile software that is implemented and accessible via a subscription service on the internet.
The results so far are impressive on sales and when Sage reported in a Q1 trading update on Wednesday morning it provided a positive outlook which sent shares soaring:
It’s little wonder.
Sage reported revenue from its older “organic software and software-related services” declined by 5.3% as a “reflection of the planned transition to subscription relationships and therefore less upfront revenue from new licences and upgrades.”
But at the same time organic recurring revenue grew by 10.4%, “driven by software subscription revenue which grew by 35.7% for the quarter.”
In other words, sales are pleasingly shifting from the old to the new and having an overall positive effect on the company.
“Sage walked towards today’s open considerably undervalued,” said Eden in a research note this morning.
“Investors should take care, as big moves like this can often be attributed to mania, but it’s clear that Sage will be one to watch (one of just two tech groups on the FTSE100 to be precise) as it steps up to the mark to receive the competition — a wave of plucky hipster start-ups.”