The Sage Group plc: a FTSE 100 growth stock I could retire on

Royston Wild explains why The Sage Group plc (LON: SGE) is a FTSE 100 (INDEXFTSE: UKX) star that could make you rich.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Sage Group (LSE: SGE) might be expensive but it’s a stock I have long championed thanks to exceptional earnings prospects.

However, the accountancy giant has fallen to three-month lows in Wednesday trading, with investors taking fright after the release of first-quarter trading numbers. The share was last 9% lower in the day.

Don’t be hasty!

Sage declared today that group organic revenues rose 6.3% between October-December, disappointing market expectations and signalling a soft start to the year.

I think that today’s sell-off is looking just a tad OTT. However, even if it also reflects not-insignificant amounts of profit booking after recent share price strength, Sage has seen its market value swell 30% in the 12 months to the start of today’s trading.

Indeed, there was still plenty to cheer in the FTSE 100 giant’s latest release. Organic recurring revenues grew 7% in the first quarter, thanks to software subscription growth of 26%.

These early results haven’t exactly spooked Sage either, with chief executive Steve Hare commenting: “Quarter one results are in line with our expectations.” He added that the huge sums it has dedicated to sales training in the period has pushed some revenues into the second quarter.

And Hare expects sales to pick up steam in the months ahead, noting: “We expect acceleration throughout the year including a stronger quarter two and we reiterate our full year guidance of around 8% organic revenue growth and around 27.5% organic operating margin for [fiscal 2018].”

Bright forecasts

Sage has long been a reliable pick for investors seeking robust earnings growth, and City analysts are not expecting the firm’s bottom line to stop swelling any time soon.

A 12% profits improvement is forecast for the year to September 2018, and an additional 10% increase is forecast for next year.

And this bright outlook means that share pickers can look forward to increasingly-appetising dividends, too. Sage’s ultra-progressive policy is expected to push the dividend from 15.42p in fiscal 2017 to 17p this year, and to 18.7p in the following period, so share pickers can bask in chunky yields of 2.3% this year and 2.5% next.

Sage can still be considered an expensive pick despite today’s market slump, its forward P/E ratio of 22 times sailing above the widely-regarded value terrain of 15 times and below.

But in my opinion the company is worthy of this premium given the terrific progress it is making in the growth market of North America. And with new product launches in recent months set to be followed with more in the months ahead, I expect sales to pick up sooner rather than later.

Home comforts

The gaping imbalance between homes supply and demand in Ireland means that Cairn Homes (LSE: CRN) is another great growth bet for investors to tap into today.

Just this month, the Dublin business commented: “The supply of new residential homes in the Irish market will continue to significantly undershoot demand in 2018 and 2019,” adding: “This, allied with strong demographics, strengthening mortgage market fundamentals and a growing economy are all supportive of Cairn’s business model.”

So in 2018, City brokers are predicting that earnings will explode 427%, an estimate which also leaves the builder dealing on a dirt-cheap forward P/E ratio of 9.9 times. Another 81% advance is forecast for 2019, and it’s not difficult to see profits powering higher beyond this as Cairn plans to turbocharge build rates through to the end of the decade.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Sage Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »