It’s a busy week for company results this week, so what better than to compare and contrast two very different companies, both with results on offer?
Soaring software techie
Sage Group (LSE: SGE) has been a magnificent success so far — since the end of 1995, we’ve seen a rise of 1,600%! Every share you bought back then for just 40p would today be worth 669p .
We do need to try to forget the embarrassing madness that was the dotcom bubble of 2000, which propelled many shares to frankly brainless valuations — and which propelled Sage shares to a price that they have not since regained. If you thought the popular book “Extraordinary Popular Delusions and the Madness of Crowds“, first published in 1841, was just an amusing historical document… well, no, it’s also a prediction of the kind of idiocy that will continue to grip investors as long as there’s a free market.
Sage has posted regular EPS rises year after year, and today we heard of a further 9% rise in underlying full-year EPS after organic operating profit rose by 9.2% with organic revenue up 6%. Underlying cash conversion came in at 100%, enabling an 8% rise in the full-year dividend to 14.15p per share.
That’s a modest dividend yield of only 2.1% on today’s share price, but it’s been strongly progressive, and if you’d bought shares five years ago at around 300p per share then you’d be looking at an effective yield on your original investment of 4.7% — plus an intervening share price rise of 120%.
For a company currently in the midst of a “transformation programme“, a record of steady earnings progress has been very impressive. We’re looking at a forward P/E of 21 now based on forecasts for the year to September 2017, and that seems justified to me for a company that surely has attractive prospects ahead of it.
Waste management company Biffa (LSE: BIFF) returned to public status via a flotation as recently as October 2016, so we don’t have much of share price track record to go on — at 176p today, the shares are down a fraction from their initial offer price of 180p, which is neither here nor there.
Today’s first-half results showed an 8.6% rise in net revenue, though that was partly through two acquisitions in the period — organic revenue was reported to have increased by 3.7%.
Underlying EBITDA came in 14.9% ahead at £71m, and the firm told us that full-year expectations are unchanged, with cash flow “in line with expectations” — although it’s hard to work out what the City expects right now, with forecasts being notable by their scarcity.
Biffa claimed an underlying earnings per share figure of 171p for the half, and if repeated in the remainder of the year it would imply a P/E of less than a half at today’s share price — but against that, the firm reported a statutory loss per share of 50p, which would make the P/E meaningless.
On the dividend front, Biffa says it “intends to pay annual dividends based on a targeted dividend pay-out ratio of approximately 35% of consolidated annual underlying post-tax profit“, but we really can’t tell at this stage what that’s likely to be.
The firm is big in the waste business and my gut feel is that we’re looking at a bargain — but you might want to wait for full-year results.