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MARKET COMMENT
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Accounting software supplier and FTSE 100 member Sage Group (LSE: SGE) released a trading statement this morning for the six months ending 31 March. The market was duly impressed and marked up the shares 4.6% to 126p. At 15 times forecast earnings, its valuation is undemanding. Revenues grew 4% to approximately £282 million, with pre-tax profit increasing to £74 million (in line with expectations and 14% up on the six months to March 2002). In the UK, operating margins improved to 40% on sales up 5%, but US sales (Sage's biggest earner) were even better, growing 7% on margins of over 23%. However, sales in Europe disappointed, falling 1% on flat margins. Sage's predictable financial performance has earned it a coveted 'Boring Award' from the IT consultancy Ovum Holway. This is because Sage is one of a select group of IT businesses that have never issued a profit warning and have always reported higher earnings from one period to the next (Capita is another). This is downright impressive when you consider the long list of struggling ex-Footsie software firms: Autonomy (LSE: AU.), Baltimore (LSE: BLM), LogicaCMG (LSE: LOG) and Misys (LSE: MSY). Unlike most of its rivals, which rely on selling new product licences to generate revenues, Sage makes plenty from support and services contracts, stationery and upgrades for existing users. Furthermore, Sage's sales are given a boost because its customers usually prefer to spend more on extra support and upgrades than to switch supplier (with all the hassle that entails). Taking a little shine off these respectable results is the news that, after 22 years with Sage, co-founder and managing director Graham Wylie is retiring at the end of May. He is to be replaced by Paul Stobart, who has been with the group since 1996. Nevertheless, as well as being one of the very few software companies to have avoided disaster over the last three years, Sage is the best in its breed. What's more, the news that the chancellor has extended 100% capital allowances to small businesses investing in information technology could benefit the company. Sage's 'Boring Award' is a badge of honour, as its shares are the pick of the software sector.